Preamble

The House met at half-past 
Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

H.R.H. THE DUKE OF GLOUCESTER (FUNERAL)

Mr. Speaker: I have to inform the House that I have been asked by Her Royal Highness the Duchess of Gloucester to attend the funeral of the Duke of Gloucester at Windsor at 11.30 a.m. tomorrow. I hope that the House will approve of my decision to accept and will grant leave of absence.

Hon. Members: Hear, hear.

Mr. Speaker: I thank the House.

PRIVATE BUSINESS

BRITISH RAILWAYS BILL (By Order)

Order for consideration, as amended, read.

To he considered upon Tuesday next.

FIFE COUNTY COUNCIL ORDER CONFIRMATION

Mr. William Ross: Mr. William Ross presented a Bill to confirm a Provisional Order under Section 7 of the Private Legislation Procedure (Scotland) Act 1936, relating to Fife County Council; and the same was read the First time; and ordered to be considered upon Wednesday next and to be printed. [Bill 60.]

Oral Answers to Questions — NATIONAL FINANCE

£ Sterling (Value)

Mr. Carter: asked the Chancellor of the Exchequer what is the value of the £ sterling, to the latest date, compared to the French franc, Italian lira, deutsche-mark and United States dollar; and how this compares to the value on 28th February 1974.

The Paymaster-General (Mr. Edmund Dell): With permission, I will circulate the figures in the OFFICIAL REPORT.

Mr. Carter: Would my right hon. Friend accept that those figures will show that the pound has improved generally against the currency mentioned? Can he say why it is that, since Election Day, 28th February, although the pound has improved in this way, thus reflecting foreign confidence, the Conservative Party and its leader have proclaimed throughout the country how badly the economy is doing under the present Government?

Mr. Dell: I am glad that there is foreign confidence in sterling. The figures available since 28th February confirm what my hon. Friend has said. There has been a slight depreciation compared with the deutschemark but in other cases there has been an appreciation.

Mr. John More: Does the right hon. Gentleman accept that, quite contrary to the statement made by his hon. Friend, the Arab oil inflow in excess of £600 million is a key factor? Would he like to say whether he will pursue policies to lower interest rates and turn away such money, or does he intend to increase sterling guarantees?

Mr. Dell: Arab oil has been a factor in this. As has been frequently pointed out, our policy of lowering interest rates is subject to the constraints imposed by the international situation. As for the sterling guarantees, the hon. Gentleman must wait and see.

Following is the information:

London middle market closing rate on



28th February 1974
4th June 1974
11th June1974


Currency
(£1=)
(£1=)
(£1=)


French franc
11·146
11·698
11·78


Italian lira
1,492·5
1,543·7
1,562·7


Deutschemark
6·159
6·034
6·011


U.S. dollar
2·3050
2·4003
2·3950

Value Added Tax

Mr. Hal Miller: asked the Chancellor of the Exchequer whether he will remove from the scope of VAT those items of medical equipment such as linear scanners supplied to hospitals from money raised by public subscription.

The Financial Secretary to the Treasury (Dr. John Gilbert): I have noted the hon. Gentleman's suggestion.

Mr. Miller: Will the hon. Gentleman please bear in mind that medical research and treatment is in some cases being delayed or prevented by an inability to procure this equipment, for which on occasion public funds have been raised? Will he please give speedy consideration to exempting such equipment from this tax and possibly also from import duty?

Dr. Gilbert: The case to which I think the hon. Gentleman is referring is the purchase of a piece of equipment of this sort to be presented to the Worcester Royal Infirmary in memory of the late John Baker. If the hon. Gentleman has not yet heard the news, I am glad to be able to tell him that this equipment will be relieved from both import duty and VAT.

Mr. George Gardiner: asked the Chancellor of the Exchequer what consultations are being undertaken by the Inland Revenue on the feasibility of differential rates of VAT; and what options are under investigation.

Dr. Gilbert: None, Sir. The Inland Revenue does not administer VAT. I would refer the hon. Member to the answer I gave yesterday to my hon. Friend the Member for Sheffield, Atter-cliffe (Mr. Duffy).

Mr. Gardiner: May I ask the Minister whether, in considering any changes in

the rates of VAT, he would agree that in the interests of the family budget it would be better if he began by removing the 5p VAT imposed on petrol in the Budget?

Dr. Gilbert: My right hon. Friend had to make a decision about the amount of revenue he had to raise to lower the net borrowing requirement. Unfortunately one of the elements had necessarily to be petroleum products, in this case petrol. Through the operation of the VAT mechanism no element of that tax will fall on public transport fares.

Mr. Denzil Davies: When my hon. Friend is considering the scope of VAT, will he make it clear that the Government have no intention of implementing the proposals of the European Commission to impose VAT on the sale of new houses as is proposed in the harmonisation directive?

Dr. Gilbert: I will certainly take note of my hon. Friend's point. At the moment there are no requirements from the Commission for harmonisation as to either rate or rate structure.

Mr. Fairgrieve: Will the Minister accept that the whole point of VAT is that it should be imposed at two rates, zero and one other rate, thus distinguishing it from purchase tax, which had a series of rates? Will he assure us that it will operate only at those two rates?

Dr. Gilbert: Obviously I am not able to give the hon. Gentleman that assurance. That is why the consultations are taking place. I would point out that two countries already have four-rate structures and another has a five-rate structure.

Mr. Higgins: Will the hon. Gentleman accept that the Opposition do not regard as obvious what he said about changes in rate structure? Is it true that traders have been told that if there is a change in rate or in rate structure they will be helped with the provision of calculating equipment?

Dr. Gilbert: Not to my knowledge.

Gold

Mr. Adley: asked the Chancellor of the Exchequer if he will seek talks with


the Finance Minister of South Africa on the question of gold as a reserve currency.

Mr. Dell: No, Sir. There is agreement in the Committee of Twenty, in which South Africa is represented, that the SDR should become the principal reserve asset of the international monetary system and that the rôle of gold should be reduced.

Mr. Adley: Following the announcement by the Group of Ten last night, is not there a need to do everything we can to improve relations between Her Majesty's Government and the Government of South Africa? Are not the producers of gold as important to us as are the producers of oil?

Mr. Dell: I see no connection between what happened in Washington last night and Britain's relations with South Africa. There is a generally accepted policy, in which South Africa takes part, that the rôle of gold in the international monetary system should be reduced. Nothing that has happened in Washington has altered that fact.

Mr. Sedgemore: Is my right hon. Friend aware that when Great Britain left the gold standard on 21st September 1931 there were 2,803,522 people unemployed in this country? Is he further aware that certain Powellites on the Opposition benches and the Editor of The Times seek to cure inflation by the creation of unemployment and wish to return to the gold standard as a means of inflicting the discipline of unemployment on the people of this country? Will my right hon. Friend utterly reject that philosophy?

Mr. Dell: We have no intention of curing inflation by an increase in unemployment of the kind referred to by my hon. Friend.

Mr. Hugh Fraser: Is it not time that the Treasury came off cloud 10 or cloud 20 and came down to reality? Value is in gold and not in baskets of bogus currency which is constantly being inflated.

Mr. Dell: I know that that is the right hon. Gentleman's view. It is not the view of the Group of Ten or of the Committee of Twenty. A Private Notice Question has been tabled on what happened in

Washington. Perhaps we should leave it until that is reached.

Retail Prices

Mr. Dixon: asked the Chancellor of the Exchequer what were the percentage increases since October 1973 in the retail price index (January 1962 = 100) in March 1974 and April 1974, respectively; and what is his estimate of the contributions made to those increases by the price of oil imports.

Mr. Dell: In March the General Index of Retail Prices was 6·1 per cent. higher than in October 1973, and in April it was 9·8 per cent. higher. By April the direct effect of oil import price increases had been to add about 1 per cent. to the index. Including indirect effects, it is estimated that the eventual effect of the increases will be to add about 3 per cent. to the index, but it is difficult to judge how much of this had come through by April.

Mr. Dixon: Does the right hon. Gentleman agree that a major, if not the major, reason for the apparent failure of the previous Government's stage 3 policy was the Middle East developments? Does he agree that in his present position he is under the same difficulties as were experienced by the previous Government?

Mr. Dell: Certainly the increase in oil prices has been a factor in inflation in this country and elsewhere. The effect of the increase in oil prices has not yet fully worked through into the retail price index. Fortunately there are signs of commodity prices generally stabilising, which of course would be a favourable factor.

Tax Avoidance

Mr. Skinner: asked the Chancellor of the Exchequer if he will introduce proposals to prevent the abuse of tax avoidance by the use of addresses in offshore islands.

The Chief Secretary to the Treasury (Mr. Joel Barnett): An address outside the United Kingdom does not in itself provide a means of avoiding United Kingdom tax. But the question of tax avoidance is continuously under review and I shall bring forward any necessary proposals at a suitable time.

Mr. Skinner: I want my hon. Friend to apply his sharp accounting mind to this problem—

Hon. Members: Ask a question.

Mr. Speaker: Order. This is not speech-making time; it is Question Time.

Mr. Skinner: I said only half a dozen words. When my hon. Friend is considering this matter, will he bear in mind that there are millionaires, property dealers and others of that ilk who have an address in Jersey or similar places and who use private aeroplanes and private airfields to come back to this country to live each week, or perhaps each night? By doing that they avoid taxation, yet in my constituency there are pensioners who have paid taxes all their lives and have never once been to the coast.

Mr. Barnett: I fully understand my hon. Friend's feelings on this matter, and the Treasury Bench agrees with him. He is talking not about avoidance but about evasion. The difference between the two is the thickness of a prison wall. We are looking closely into these matters and hope to make a statement in the future.

Mr. Ian Lloyd: Does the Chief Secretary agree that if one compares the various illegitimate claims being made on the real resources of society the one referred to by the hon. Member for Bolsover (Mr. Skinner) pales into insignificance in scale by comparison with the one that is illustrated on all the main posters advertising London newspapers this afternoon?

Mr. Barnett: I hope that the hon. Gentleman is not suggesting that we should do nothing about evasion, which is what my hon. Friend was talking about. That is what we intend to stamp out.

Exchequer Receipts (Northern Ireland)

Mr. Dalyell: asked the Chancellor of the Exchequer if he is satisfied with the operation of the arrangements for balancing Exchequer receipts between Great Britain and Northern Ireland.

Mr. Joel Barnett: Yes, Sir. Since 1st January 1974 these arrangements have been governed by Section 15 of the Northern Ireland Constitution Act 1973. That Act provides for payment from the United Kingdom to Northern Ireland of a sum equal to the Northern Ireland share of

United Kingdom taxes. The amount of the share and the method of calculating it are determined by the Treasury.

Mr. Dalyell: As many Ulstermen are not incurious about the topical subject of the precise extent to which they are beholden to us on this side of the water, will the Treasury mount an exercise to establish the truth? Secondly, will the Treasury reflect on a system of financial decision making that has resulted in under-carred motorways in Ulster and Protestant and Catholic slums in Belfast?

Mr. Barnett: The truth of the essential facts of the matter is already known and the total payments have been announced recently by the Secretary of State, but I shall be happy to circulate a breakdown of the figures in the OFFICIAL REPORT. In reply to the second part of the supplementary question, this is a matter of priorities inside Northern Ireland within the concept of parity.

Following are the figures:


UNITED KINGDOM FINANCIAL SUPPORT TO NORTHERN IRELAND



1973–74
1974–75



Actual
Estimate



£ million
£ million


Special payments for:


Health Services(£15million)
53
Nil


Social Services (£30 million)


Regional Employment


Premiums (£8 million)


Great Britain National Insurance Fund contribution to Northern Ireland National Insurance Fund
30
30


Grant-in-Aid
175
200


Direct expenditure by*:


NIO and PSA (includes cost of Law, Order and Protective
Services from 1st January 1974)
20
81


MAFF Agricultural support and, in 1974-75,Food Subsidies)
30
37


MAFF Agricultural Remoteness Grant
2
2



—
—



310
350


Loans from National Loans Fund
66
80



—
—


TOTAL
376
430



—
—


* Excluding Defence.

Incomes Restraint

Mr. Stanley: asked the Chancellor of the Exchequer whether he proposes to end the statutory restraint of incomes at the expiry of phase 3.

Mr. Dell: The Prices Bill contains provision for ending the statutory control of pay. We shall seek parliamentary approval for the exercise of these powers as soon as they are available to us.

Mr. Stanley: In view of the Minister's confirmation that he wishes to abolish statutory control over incomes immediately, what steps will the Government take to moderate the huge new pay claims now in process of preparation which his right hon. Friend the Chancellor of the Exchequer has already stated publicly the nation cannot afford?

Mr. Dell: It is of the utmost importance to moderate pay settlements. That is the object of entering into the social contract and of the discussions we are having with the Trades Union Congress.

Mr. Loughlin: Although he accepts that it is essential to restrain wage claims, does not my right hon. Friend recognise that wages are only one factor in inflation? Is it not better to emphasise the insignificant effect of wages upon inflation compared with other factors? Does my right hon. Friend agree that Opposition Members, before talking about restraint, should think not only in terms of the incomes of industrial and commercial workers but also in terms of the incomes which they themselves enjoy?

Mr. Dell: There are certainly other important factors in inflation, but that does not mean that it is not important to moderate income settlements.

Mr. Robert Carr: May I take it that the right hon. Gentleman still agrees with the Prime Minister that one man's pay increase is another man's price increase?

Mr. Dell: I certainly agree that wage settlements can be a factor in inflation. There are other factors. Inflation has to be brought under better control than was achieved by the Conservative Government.

Borrowing

Mr. Bruce-Gardyne: asked the Chancellor of the Exchequer what additions have been made to the net borrowing requirement since the Budget; and how it is proposed that such additions should be financed.

Mr. Joel Barnett: It is not customary
1 to give forecasts of the public sector borrowing requirement other than at Budget time. My right hon. Friend has made clear our intention to effect a large reduction in the borrowing requirement for the current year compared with 1973–74.

Mr. Bruce-Gardyne: I am sure we all wish the right hon. Gentleman the best of British luck in that objective. Is it not the case, however, that since the Budget hardly a day goes by without fresh Government commitments to the financing of the social compact and that each of these commitments is being financed out of "hot" money? What I happens when the "hot" money starts going out again?

Mr. Barnett: I do not agree with the hon. Gentleman. The only major event in this respect is the £500 million which we promised would go, if required, to the building societies. If the hon. Gentleman does not want to reduce mortgage payments—

Mr. Bruce-Gardyne: I do not.

Mr. Barnett: The hon. Gentleman may not want to reduce them, but I should like to hear what his hon. Friends have to say.

Mr. Higgins: Is it not dangerous to have a Secretary of State for the Environment who is not clear which of his proposals will increase the borrowing requirement and which will not? Will the Chief Secretary hold a seminar for his right hon. Friend?

Mr. Barnett: No, Sir.

Wealth Tax

Mr. Hurd: asked the Chancellor of the Exchequer what recent representations he has received about the likely effect on agricultural production of the proposed wealth tax.

Mr. Loveridge: asked the Chancellor of the Exchequer if, in introducing the proposed wealth tax, he will seek to ensure reliefs that will prevent the piecemeal sale of the assets of any business due to the accumulative effects of this tax when added to other taxation.

Mr. Joel Barnett: I have received some representations on behalf of farmers. But the effects of the wealth tax on agriculture or on businesses are matters for later public discussion in the light of the Green Paper which my right hon. Friend will publish during the summer.

Mr. Hurd: Will the hon. Gentleman accept that farmers who have expressed anxiety about this matter are not enjoying a lush standard of living but by and large are people who have seen the main tool of their trade—the land—rise sharply in value? Can he, in advance of the Green Paper, do something to restore confidence in the farming industry by giving an undertaking that he will not bring in any measure which would lead to the breaking-up of farms or do anything to upset a highly efficient farming industry?

Mr. Barnett: I do not accept the assumption in the hon. Gentleman's question. The subject of farmers will be discussed when the Green Paper is published. It is known that there are many farmers and landowners who have been known to acquire substantial amounts of wealth, and they should pay their fair share in wealth tax.

Mr. George Lawson: When considering the treatment given to farmers, will my hon. Friend bear in mind the great advantages which they enjoy in rate relief and which are not enjoyed by other people?

Mr. Barnett: I am grateful to my hon. Friend for that comment, and I remind him that there are other reliefs as well. It is important to remember that there are some career farmers whom it might be necessary to help, and this matter will be discussed when the Green Paper is published.

Mr. Awry: Is the hon. Gentleman aware that practically all the farmers in my constituency have all their money invested in their business? Does not the hon. Gentleman appreciate that if there is to be a further tax imposed upon them, they will have to sell part of their business to pay the tax? This would have a disastrous effect on agriculture in my constituency.

Mr. Barnett: I doubt whether that is true of every farmer, although it may be

the case in the hon. Gentleman's constituency. It will be a matter for discussion when the Green Paper is published.

EEC Finance Ministers

Mr. Blaker: asked the Chancellor of the Exchequer when he next expects to meet the Finance Ministers of the EEC.

Mr. Marten: asked the Chancellor of the Exchequer when he will next be meeting Common Market Finance Ministers.

Mr. Dell: My right hon. Friend attended a meeting of EEC Finance Ministers on 6th June. The next meeting will be held on 15th July.

Mr. Blaker: In view of the present economic difficulties and uncertainties in Western Europe, and indeed throughout the world, is it not clear that close cooperation between the Chancellor of the Exchequer and his colleagues in the Committee of Finance Ministers will be important in the coming months?

Mr. Dell: That is true. Indeed, general international monetary co-operation will be important in the coming months. This is why my hon. Friend is currently in Washington.

Mr. Raphael Tuck: What about monetary union? Has any progress been made on that perilous road?

Mr. Dell: My right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Foreign and Commonwealth Affairs have made clear the Government's view about economic and monetary union.

Mr. Marten: When the Chancellor meets the Finance Ministers, will he remind them of the Conservative Party manifesto in 1970 in which we said that if we did not get into the Common Market we were confident that we could stand on our own feet outside it? Does the right hon. Gentleman agree that the oil bonanza since then will mean that we shall have a much greater opportunity to stand on our own feet outside the Community?

Mr. Dell: The hon. Gentleman forgets that nobody is likely to believe anything in the Conservative manifesto any more.

Corporate Liquidity

Mr. Biffen: asked the Chancellor of the Exchequer if he will make a statement on the present situation and future prospects for corporate liquidity.

Mr. Dell: The gross liquid assets of industrial and commercial companies were at the high level of £10,000 million at the end of the fourth quarter of 1973. The strains of three-day working will since have eroded the position to some extent. The Government will continue to watch the situation and will ensure that investment is not hampered by a lack of finance.

Mr. Biffen: When watching the situation will the right hon. Gentleman bear in mind that there is a malaise among British industrial and commercial managements, which amounts almost to a crisis of confidence? This derives partly from the belief that the Government are unaware of the serious cash difficulties in British industry and the belief that there is hostility to the profit motive among many Labour Members and appropriate anxiety about the intervening ambitions of the Secretary of State for Industry.

Mr. Dell: I do not believe that there is reason for a lack of confidence on those grounds. The problem arises from the changing pattern of company finance. Companies are increasingly reliant on bank finance and, therefore, their net liquidity position shows a deficit. Nobody believes that money outstanding from them will be called in. They are as far as we can see generally speaking in a strong liquidity position and this should have a beneficial effect on investment.

Mr. Kinnock: Is it not the case that the fears allegedly expressed by the business community about the activities of the Secretary of State for Industry are simply the latest in a long and old list of excuses for the useless and hopeless performance of large sectors of British privately-owned industry in past years?

Mr. Dell: There are many reasons for the poor economic performance of this country. One may be our stop-go policies since the war. I do not wish to distribute the burden of responsibility for our poor performance unequally between Government and industry.

Taxation Comparisons

Mr. Ridley: asked the Chancellor of the Exchequer if he will publish a White Paper setting out the details of taxes on higher incomes, gifts, inheritance, death, and capital gains, in the United Kingdom and in the principal industrialised countries of the West, respectively.

Dr. Gilbert: No, Sir. A comparative table of nominal tax rates would be of little value without a full examination of their social context and their practical effects. My right hon. Friend will be publishing in the forthcoming Green Paper some information about wealth taxes in other countries.

Mr. Ridley: Is the hon. Gentleman aware that his reluctance to give the House this information must be due to the fact that it is well known that taxes of this kind on the Continent are infinitely lower than are those which operate in the United Kingdom? Since those continental countries have had a much more satisfactory economic performance than we have enjoyed, does he agree that the higher that taxes of this sort are levied the less likely we are to get a decent, sustained growth?

Dr. Gilbert: I am sure the hon. Gentleman would agree that comparisons of relative tax burdens between different countries are notoriously difficult to make unless one takes into account the different physical structures, standards of living and income levels.

Mr. Frank Allan: Is it not a fact that the earlier questions about impoverished farmers and the kind of questions we are now hearing from the Conservative benches are irrelevant when we consider that the starting point in such a tax would be at a level of £50,000? I hardly think that many of our constituents would consider themselves poor if they were enjoying a capital of over £50,000.

Dr. Gilbert: I agree that very few of our constituents would attract wealth tax.

Mr. Peyton: Before the hon. Gentleman resorts to the habitual pride of the Labour Party in a high level of taxation, he and his colleagues should look at the long list of writers, artists, composers, musicians and the rest who have been


forced to go elsewhere. Does he think that this tyrannical system of tax ultimately will be to the benefit of our country?

Dr. Gilbert: I would be surprised if the right hon. Gentleman was suggesting that the artistic spirit was so closely connected with financial matters.

Age Exemption Limits

Mr. Moate: asked the Chancellor of the Exchequer what would be the approximate cost in a full year of raising the age exemption limits from the proposed £785 for a single person and £1,130 for married couples to £900 and £1,300, with corresponding marginal relief.

Dr. Gilbert: The revised age exemption limits proposed for 1974–75 are £810 for a single person and £1,170 for a married couple. The cost of increasing these to £900 and £1,300 respectively, with the consequential adjustments in marginal age exemption relief, would be about £50 million in a full year.

Mr. Moate: I recognise the value of the pension increase and the large exemption increases even since the Budget Statement but does not the Financial Secretary agree that pensioners with a small private pension over and above the State pension are particularly hard hit by rising prices? Does he not realise that big deductions from these modest incomes can cause great hardship and resentment, and does he not feel that higher priority should be given to raising the starting point on taxation for pensioners?

Dr. Gilbert: I am grateful to the hon. Member for his remarks about the increase in the national insurance pension. Of course, we all recognise that there is genuine concern on both sides of the House about the position of pensioners at all income levels. I am sure, however, that the hon. Member will agree that the greatest need is on the part of those who do not have enough income even to attract the lower rate of income tax. My right hon. Friend provided in his Budget that any elderly person who was exempt from tax before by reason of the threshold will remain exempt thereafter.

Mr. Robert Carr: If the Financial Secretary and his right hon. and hon. Friends are genuinely concerned with

deeds and not merely with words concerning the problems of the retired, why are they increasing the taxation burden on such people?

Dr. Gilbert: I am sure the right hon. Gentleman will recognise that even those pensioners who are fortunate enough to have an income that would attract the investment income surcharge will not have to pay the full rate. They will get relief additional to that afforded to other taxpayers.

Widows (Tax Allowances)

Mr. McCrindle: asked the Chancellor of the Exchequer what representations he has received from women's organisations on the tax allowances of widows.

Mr. Leslie Huckfield: asked the Chancellor of the Exchequer what further proposals he has for an improvement in the position of tax allowance for widows.

Dr. Gilbert: My right hon. Friend and I have received a number of representations on this point, and I am meeting a deputation from the National Association of Widows later this month.

Mr. McCrindle: Has any consideration been given to extending to widows, and perhaps even to divorced women, a tax allowance at the same rate as that enjoyed by a married man rather than that of a single woman, which is the prevailing situation? Will the Minister bear in mind that these women often have to go on meeting the same financial and family burdens after the loss of a husband for one reason or another?

Dr. Gilbert: Again, I am sure there is common ground between both sides of the House on the need to do everything possible to help widows, particularly those with young families. I am sure the hon. Member recognises that women who are unfortunate enough to be in such a position will have their single person's allowance increased by £30 this year. They will also benefit by the increase in the child allowance by £40 for each child. A point to which the hon. Member did not allude is that the widow's pension will go up by a record amount and that those having care of children will attract an additional personal allowance.

Mr. Huckfield: Does my hon. Friend accept that many of these widows, as the hon. Member for Brentwood and Ongar (Mr. McCrindle) pointed out, have to bear all the financial burdens of being a house owner and all the family burdens of their late husbands but that they do not have anything like the same income? Notwithstanding some of the proposals which I understand may be emanating from my right hon. Friend the Secretary of State for Social Services, does not my hon. Friend think we now have an opportunity to take a much more comprehensive look at this?

Dr. Gilbert: I take my hon. Friend's point that there are certain unavoidable expenses attached to the running of a household, however modest it may be and regardless of whether it is run by a single individual or a married couple. It is for that reason that the single person's allowance has for a long time been much more that half of the married person's allowance.

Mr. Rost: It not slightly dishonest for the Financial Secretary to claim that personal allowances have been increasing and will therefore help widows when the increases are less than the rate of inflation and household costs, particularly as a result of the Budget, have been increased substantially?

Dr. Gilbert: I merely remind the hon. Member that the widow's pension has been increased by a record amount and that we have taken steps outside the Budget in terms of food subsidies to try to hold down the basic cost of living for those who are least well off.

Property Companies

Mr. Norman Lamont: asked the Chancellor of the Exchequer what instructions he has given to the Bank of England about the rôle to be played by the banking system towards property companies in financial difficulty.

Mr. Dell: None, Sir.

Mr. Lamont: I appreciate the political sensitivity of the subject and the strong feelings which exist about speculation, but in any instructions that may be given will the Paymaster-General bear in mind the connection between the property industry and pension funds? Will he bear in mind that a complete collapse

in the property industry would very much add to the considerable difficulties already facing many pension funds?

Mr. Dell: I shall bear in mind the facts to which the hon. Member has referred. We are in close contact with the Governor of the Bank of England, who is keeping us informed of developments affecting the property companies and their possible implication.

Mr. Ashton: Are not property companies absorbing an abnormal amount of money from pension funds, which should be going into building societies to help young couples to buy their own homes? Cannot my right hon. Friend introduce legislation to insist that pension funds and unit trusts devote a large proportion of their income to building societies so that young couples can get loans?

Mr. Dell: There are regulations governing these funds and, of course, I am prepared to consider any proposal made to me.

Mr. Robert Carr: Will the right hon. Gentleman bear in mind that, whatever ought or ought not to be the situation in the future, the present situation is that the pensions of many millions of people are heavily dependent on the point raised by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont)?

Mr. Dell: We are in close contact with this problem but we do not under existing law govern the investment decisions of pension funds. If people invest ill advisedly, it comes poorly from Conservative Members to recommend the Government to rescue those investors from the results of those decisions. However, this is an important problem and the fate of pension funds is of wide significance. We have that fact in mind.

Mr. Molloy: Is my right hon. Friend prepared to consider other activities of so-called property companies? For example, how about those that indulge in asset stripping? They seem to get away with vast profits and to damage some aspects of British industry.

Mr. Dell: I am always prepared to consider any matter that my hon. Friend brings before me.

Sir John Hall: Will the right hon. Gentleman consider the suggestion of the


hon. Member for Bassetlaw (Mr. Ashton) that he should encourage property companies to invest in building societies, and at the same time remove the fiscal disadvantage which those companies would suffer by so doing?

Mr. Dell: If the hon. Member wishes to put a proposal before me I shall consider it.

Mr. Loughlin: If we are to hear these pathetic pleas from investors in property companies, whether they be pension funds or anyone else, would it not be better if the Government were able to direct investment to social ends as well as to the highest rate of return and take over the insurance companies and pension funds?

Mr. Dell: I hope my hon. Friend will bear in mind that one of the things we have done is to bring down the rate of interest to assist building societies to help channel money into the buying of houses. All this is of great social importance.

Mr. Higgins: Is the right hon. Gentleman aware that one of my hon. Friends has made a proposition? It appears on the Order Paper and will be debated later today.

Mr. Dell: We look forward to his speech during the debate.

National Savings

Mr. Pardoe: asked the Chancellor of the Exchequer if he will make a statement about the Government's policy towards the indexation of national savings to protect savers against inflation.

Sir David Renton: asked the Chancellor of the Exchequer if he has yet reached a decision on action to implement the recommendations of the Page Report on National Savings.

Mr. Dell: We are considering the report of the Page Committee, including its recommendation for the experimental issue of an index-linked bond for the small saver. We will announce our decisions as soon as we can.

Mr. Pardoe: I thank the Paymaster-General for that slightly encouraging reply. Referring back to the previous Question, is the right hon. Gentleman aware that the most ill-advised invest-

ment anyone in this country could make is not in property companies but in the Government? Will he admit that the Government are actively encouraging people to invest their money at a loss? Will he take immediate steps either to ensure that small savers get at least a positive return on their money in national savings, or to stop all advertising of this fraudulent practice?

Mr. Dell: The hon. Gentleman will know that we have improved the terms for national savings securities. The improved terms recently came into operation and we shall see how attractive they are to the public. Index linking is a question which we have under serious consideration. The House must realise that there are substantial difficulties. If index linking can be achieved there will be advantages, especially for the small savers. It is for that reason that we have the matter under serious consideration. I cannot give any promises or make any statement now.

Sir David Renton: Is any significance to be attached to the fact that this afternoon the Page Report is not available in the Vote Office? Will the right hon. Gentleman draw the attention of the Chancellor of the Exchequer regarding savings to the need for both a policy and an example in fighting inflation and improving investment?

Mr. Dell: I did not know that the Page Report was not available in the Vote Office. I am sure that it should be. It may be that during the time of the previous Government the people in the Vote Office became tired over a period of 12 months of waiting for a decision from them on what to do about the report. As for creating an example, my right hon. Friend, the Chancellor has given an example by substantially improving the terms of national savings securities.

Local Rates

Mr. Teddy Taylor: asked the Chancellor of the Exchequer what was the total sum raised in local rates in the most recent annual period for which figures are available; and if he will express this total as a percentage of the total sum raised in national taxation and revenue duties during the same period.

Mr. Joel Barnett: The total sum raised in local rates in 1973-74 is estimated in


the Financial Statement and Budget Report at £2,716 million, or 15·7 per cent. of total taxation.

Mr. Taylor: Does the hon. Gentleman agree that the recent savage increases in local rates in some areas have demonstrated clearly that local rates represent about the most unfair and unjust form of taxation which has ever been invented? Will the Government say clearly whether they are investigating or considering a fundamental review of this iniquitous form of taxation?

Mr. Barnett: The hon. Gentleman will know that his own Government instituted a review of sorts and issued a Green Paper in which they outlined the problems of various alternatives and indicated why they could not be adopted. We are now considering the whole problem.

Mr. Marks: Is my hon. Friend aware that the previous Government gave quite insufficient time, during the passage of the Local Government Bill, for proper discussion of the alternatives to rating? Will he urge his right hon. Friend the Lord President of the Council to set up a Select Committee to examine the alternatives?

Mr. Barnett: We are now considering the whole problem. I shall bear in mind what my hon. Friend says.

Building Societies

Mr. Walter Johnson: asked the Chancellor of the Exchequer if he will make it a condition of any loans to the building societies that they apply the whole of the loan to the assistance of house purchasers.

Mr. Dell: The purpose of the loans is to help house purchasers, and the Government are satisfied that the terms under which they have been offered will result in a higher level of mortgage commitments and advances than would otherwise have been the case.

Mr. Johnson: Is my right hon. Friend aware that it is reliably reported that by reinvestment the building societies are making a profit each month of £150,000 from the Government's loans which were made for the purpose of keeping down interest rates? Is not that a gross misuse of public funds? What will right hon. Friend do about it?

Mr. Dell: My hon. Friend should remember that the building societies have to hold some of their funds in authorised liquid assets and that their yield reflects short-term market conditions. He should also remember that the societies are nonprofit-making and that ultimately all their receipts will go to increase the societies' capacity to lend to house purchasers. As I said in my original answer, we are confident that the loans that have been offered will result in a higher level of mortgage commitments and advances than would otherwise have been the case.

Mr. Dykes: Will the right hon. Gentleman now enjoin the building societies to reduce their reserve ratios to provide more money for house building?

Mr. Dell: We believe that the steps we have taken are enabling the societies to allow more money for house building without their taking action on their reserves.

Nationalised Industry Pension Schemes

Mr. Palmer: asked the Chancellor of the Exchequer if he will introduce legislation to bring under stricter public supervision the investment policies of the nationalised industries pension schemes.

Mr. Joel Barnett: No. It is already the legal duty of trustees of pension funds in both public and private sectors to safeguard the interests of actual and potential beneficiaries.

Mr. Palmer: Is my hon. Friend aware, however, of the considerable disquiet that is felt by the employees of nationalised industries about the uncertain nature of many investments in property companies? As it is 25 years since the statutory considerations governing the operation of nationalised industry pension schemes were drawn up, is it not about time that they were considered again?

Mr. Barnett: I have no reason to believe that the trustees of nationalised industry pension funds are any better or any worse advised than those of other pension funds. Generally they are advised by the same people.

Mr. Tom Boardman: I am not asking the Chief Secretary to supervise these funds in any way, but does he not agree


that the policies of the Government of which he is a member have knocked tens of millions of pounds off the value of the pension funds of the nationalised industries?

Mr. Barnett: It was the policies of the previous Government in their competition and credit control that did that.

Oral Answers to Questions — ITALIAN PRIME MINISTER

Mr. Blaker: asked the Prime Minister whether he will invite the Italian Prime Minister to pay an official visit to the United Kingdom.

The Prime Minister (Mr. Harold Wilson): I have at present no plans to do so, Sir.

Mr. Blaker: As the Government have made it clear that they are negotiating with a view to staying in the EEC, will the right hon. Gentleman take the opportunity to make clear whether he still takes the view that was expressed in the Anglo-Italian declaration of April 1969, when he was Prime Minister, that the Community remains the basis for European unity, that the common interests of our Continent demand union and that the Community should be supported by an elected Parliament?

The Prime Minister: The Question is about the visit of the Italian Prime Minister. The hon. Gentleman may know that there are certain technical difficulties about the visit which we hope will be quickly resolved. Our general negotiations on the Market were fully debated in the House last Tuesday. Given the right conditions, which depend on the terms, we are prepared to discuss all future questions about the organisation of the Community.

Mr. Ronald Atkins: When my right hon. Friend eventually meets the Italian Prime Minister will he ask him, in the interests of informed debate in this Chamber, to list all the advantages which Italy has derived from its long membership of the Common Market?

The Prime Minister: I think that this is a matter for the Italian Government and for the Italian Parliament when they have resolved their present difficulties, with which all of us have great sympathy

and which all of us, in the common interests of the wider world economic community, hope will be quickly resolved.

Oral Answers to Questions — NORTHERN IRELAND

Mr. Dalyell: asked the Prime Minister when he next hopes to make an official visit to Northern Ireland.

The Prime Minister: I have at present no plans to do so, Sir.

Mr. Dalyell: Is not the unpalatable reality that in Long Kesh and in the nineteenth-century girls' prison in Armagh we are breeding a loathing of English politicians among the next generation in Ulster? Is my right hon. Friend aware that some of his hon. Friends were shaken to witness with our own eyes the drilling of squads and the Conditz-like atmosphere in Long Kasha? As Ireland is becoming our Algeria, is there not a case for my right hon. Friend going to Ireland and making the kind of speech that Harold Macmillan made in Africa on the "wind of change", and spelling out the end of internment without trial?

The Prime Minister: The loathing felt at the parading of Para-military forces of both extremes in Northern Ireland is something that is felt by all of us, whether the marching is in Belfast, in this country or elsewhere.
My hon. Friend referred to Long Kesh. It has been said that Long Kesh is becoming a university of disruption and subversion. At Long Kesh there are now detainees from both extremes. I do not think I would accept my hon. Friend's conclusions. I believe that the future dangers arising from hatred for this country are inculcated not only in Long Kesh but, as I said in a speech in this House as long ago as 1971, by the activities of young children on both sides as accomplices in murder, as well as by the throwing of stones and bottles, and that we are already seeing the training of the terrorists of the 1980s and 1990s. That is what we must now worry about. I do not agree with my hon. Friend's conclusions. I think that the views I have expressed are the fairly general views of the House which were indicated during the two-day debate last week.

Rear-Admiral Morgan-Giles: Without waiting to visit Northern Ireland, will the Prime Minister consider again the work of the Army, which is carrying the can for us month in, month out? Will he consider whether a piddling allowance of 50p a day is the right rate for the job?

The Prime Minister: Without commenting on the hon. and gallant Gentleman's language—[Interruption.] It sounded a bit repetitive. I discussed the matter seriously with the GOC and others in Northern Ireland, and because of that the decision was taken—not by the Government but on the advice of the advisory panel which goes into these matters —and I believe that it was much welcomed.

Oral Answers to Questions — EALING

Mr. Molloy: asked the Prime Minister if he will now pay an official visit to the London borough of Ealing.

The Prime Minister: I have at present no plans to do so, Sir.

Mr. Molloy: When my right hon. Friend does visit the borough, will he go to the northern part, where he will see the derelict site of Rock ware Glass, which made a valuable contribution to the British glass industry and is now a monument to the callousness of private industry and an example of the inefficiency of the previous Government? A good factory was closed by asset strippers and 900 British craftsmen lost their jobs.

The Prime Minister: As I recall that case, it happened under blackmail because the owners of the factory, who were doing an important job in Ealing, feared that not only the Ealing factory but the whole of their group would be taken over by asset strippers. That was already in danger of happening. They feared that asset strippers would take over the whole firm and use the site for asset stripping. In the circumstances we all very much regret what happened. The group then owning the factory decided to close it to avoid that happening. I think that was the sort of thing the Leader of the Opposition meant by his phrase "the unacceptable face of capitalism", although he never did anything about it.

Mr. Peyton: I hope that the Prime Minister will reconsider his original answer to this important Question. Does he not agree that the London borough of Ealing, neither too far from nor too near to this place, could offer him a superb opportunity and forum to clear up some of the mysteries that surround his Government's policies? In particular he might take the opportunity to explain the difference between what was a solemn and binding undertaking in 1969 and what is today described as a social compact

The Prime Minister: I have been to Ealing a number of times and I shall be glad to go there again. There is certainly a great deal I could learn from it. For example, there is the fact that when there was a Labour administration in Ealing 2,900 dwellings were put out to tender, whereas the Conservative administration put out a total of 30 dwellings to tender in 1969–70. Since the return of a Labour council in 1971 more than 2,100 dwellings have been put out to tender.
With regard to the right hon. Gentleman's question, which does not seem to have anything to do with Ealing, and with regard to the point he labored so hard to present to the House, the solemn and binding agreement referred to the matter of industrial disputes, where our record before and after that was four times better than that of the Government of which the right hon. Gentleman was a member. As for the social contract, one might have thought that the right hon. Gentleman, with his well-known fairness in these matters, would welcome the fact that the TUC yesterday agreed on a voluntary policy, which his Government tried for two years to get but which they did not get because they would not will the means in terms of prices and other matters.

Oral Answers to Questions — NATIONAL ECONOMIC DEVELOPMENT COUNCIL

Mr. Skinner: asked the Prime Minister what further plans he has for taking the chair at the NEDC.

The Prime Minister: I would refer my hon. Friend to the reply which I gave on 9th May to the hon. Member for Kingston-upon-Thames (Mr. Lamont).— [Vol. 873, c. 579.]

Mr. Skinner: Is my right hon. Friend aware that most of us on this side of the House appreciate that he is a terribly busy man and we would not want him to chair the NEDC unnecessarily? Will he consider sending my right hon. Friend the Secretary of State for Industry to chair the next meeting? Perhaps my right hon. Friend could then spell out to the well-heeled industrialists represented there that they have been receiving upwards of £4 million a day from the taxpayer's pocket and the housewife's purse—[An HON. MEMBER: "Rubbish."]—and he could remind them of that well-known Tory slogan "No taxation without representation".

The Prime Minister: As my hon. Friend knows, the chair is usually taken by my right hon. Friend the Chancellor of the Exchequer, as was the practice under the previous Government, but from time to time the Prime Minister takes it, as I did many times between 1964 and 1970. My right hon. Friend the Secretary of State for Industry almost invariably attends the meetings, but I think it is right that the Chancellor and occasionally the Prime Minister should take the chair. I do not think my right hon. Friend the Secretary of Stale for Industry needs the platform provided by the chair of the NEDC to make clear the position that my hon. Friend wanted brought to the attention of industry.

Mr. Robert Carr: Will the Prime Minister make sure that if his right hon. Friend goes to the NEDC for any such purpose he will also make clear how many millions of pounds a day industry pays into the national Exchequer by means of taxation, and assure the country that that is many times more than it takes out?

The Prime Minister: I did not think that my right hon. Friend the Chancellor was trying to make a case that industry did not pay taxation, but I thought that some of the figures produced recently suggested that over a period of years rather more went out than came in.

Oral Answers to Questions — PRESS (ROYAL COMMISSION)

Mr. George Gardiner: asked the Prime Minister whether he will recommend the inclusion of a parliamentary

lobby correspondent among the members of the Royal Commission on the Press.

The Prime Minister: I hope to announce the membership of the Royal Commission soon. While I am certainly prepared to consider the inclusion of a working journalist on the commission, I cannot undertake that he will be a member of the Lobby.

Mr. Gardiner: In view of the commission's concern with editorial standards, would it not be useful to have on it a member with some experience of the duplicity of Governments, or indeed of Oppositions? To that end, will the right hon. Gentleman consider appointing Mr. Noyes Thomas, the political correspondent who reported that Mrs. Marcia Williams was to receive a peerage, only for the right hon. Gentleman's own staff to say officially that that was totally untrue and an absurd suggestion?

The Prime Minister: The hon. Gentleman wants to know about the Lobby. I want to make it quite clear that if I do not appoint a member of the Lobby it is not because of any animus against the Lobby. We have all found that the Lobby is a much cleaner place than it was three months ago.

Hon.: Members: Cheap.

Mr. Raphael Tuck: True.

The Prime Minister: If anyone had any doubt about that, which is inconceivable, it has been proved again this afternoon. The statements made by, about and on behalf of a very distinguished Lobby correspondent, who should not be dragged down by the hon. Gentleman to his own level, are no more true than was the statement in the News of the World,last Sunday, which was immediately denied by the Metropolitan Police.

Mr. Ferny Hough: If my right hon. Friend does appoint a Lobby correspondent, will he make sure that that correspondent has written no scurrilous articles about any Members of the House to the extent that the newspaper for which he wrote them had to pay damages to the Members he libeled?

The Prime Minister: I know of no present member of the Lobby of whom that is true.

Oral Answers to Questions — USSR

Mr. Michael Latham: asked the Prime Minister whether he has yet fixed a date for an official visit to the USSR.

Mr. Kenneth Lewis: asked the Prime Minister if he will seek to pay an official visit to the USSR in the month of October.

The Prime Minister: I have accepted in principle an invitation from the Soviet Government to pay an official visit to Moscow but the date for the visit has not yet been fixed.

Mr. Latham: When the Prime Minister visits Moscow, will he make it clear to the Soviet leaders that there can be no progress towards further detente in Europe until the Russians put forward specific proposals for a greater liberalisation of ideas and for emigration from the Soviet Union of Soviet Jews?

The Prime Minister: As the hon. Gentleman will know, those matters are currently being discussed in the Geneva conference which has followed up the meeting of Foreign Ministers in this country during the period of the previous Government. We hope that sufficient progress will be made on all outstanding issues, including that to which the hon. Gentleman has referred, to be able to go forward in a really constructive way to the proposal which has been made for a meeting of Heads of Government before too long. I hope that it will be quick.
This is certainly an important point that has been raised by the hon. Gentleman. As he will know, over some period I have been very much concerned myself with individual cases of release. Indeed the Panov case, which has been pressed by very many right hon. and hon. Members, was raised by me with the Soviet Deputy Prime Minister three weeks before the decision. I am sure that it was the combined view of all those who had pressed this point that led to that conclusion.

Mr. Whitehead: We all welcome progress towards detente, but will my right hon. Friend make it clear to the Soviet authorities in whatever talks take place that civil liberties in the Soviet Union concern us greatly, and not merely the matter of emigration of Jews? Will he

particularly refer to disgusting practices such as the incarceration of political dissidents in mental homes?

The Prime Minister: I know the anxiety on these matters. While it is right that there should be further pressure, I think it better that I should not say too much about this question because, as my predecessor knows, these cases can sometimes be dealt with better in private discussions than in public declaration.

Mr. Lewis: Is the Prime Minister aware that this must be the first time that my hon. Friend the Member for Melton (Mr. Latham) and I have tabled Questions together, and that arising out of those Questions having been tabled— they were tabled a week or two ago— he has now had an invitation to go to Russia? Will he ask the Secretary of State for Industry to tell us where he would like to go? As far as possible, we will put that on the Order Paper and hope that he is sent there.

The Prime Minister: The hon. Gentleman's question has almost reached his top level of intelligence and accuracy. I announced in the House several weeks ago that I had had this invitation to go to the Soviet Union. But if the hon. Gentleman is anxious that my right hon. Friend, who has been very much concerned—as were the previous Government—in improving relations on technology and trade, should go to the Soviet Union, he could always go to China and see how they do it there.

Oral Answers to Questions — INTERNATIONAL LOANS (GOLD)

Mr. Robert Carr (by Private Notice): asked the Chancellor of the Exchequer whether he will make a statement on reports that an agreement has been made to allow official gold reserves to be used at free market price as backing for international loans.

The Paymaster-General (Mr. Edmund Dell): The Ministers of the Group of Ten agreed in Washington last night, in informal discussion, that gold might be used as collateral for loans between monetary authorities. The valuation of the gold pledged would be a matter for


agreement between the parties and could be related to the market price. The case of Italy was naturally in mind. Minor technical points remain to be settled.

Mr. Carr: I thank the right hon. Gentleman for that reply. I realise that it would be unreasonable to expect him to give details about this matter. But may I ask him three brief questions, of which perhaps the last will be the most important?
First, has an assessment been made, and, if so, can he give any idea of it, in general terms, of the effect of this decision on the interests of this country? Secondly, would it not be better in principle to help countries in special need by international co-operation on specific problems rather than by making a basic change in the international system in order to meet a special case, however difficult and urgent?
My third question I particularly want to press upon the right hon. Gentleman. Will he give an assurance that the Chancellor of the Exchequer will make a statement to the House on his return about the outcome of the conference and on the policy line taken by Her Majesty's Government at the conference?

Mr. Dell: The right hon. Gentleman will realise, I think, that I am dependent in my answers on a cable from Washington about what happened there at dinner last night. I am sure that my right hon. Friend will wish to make a statement on his return.
As for the right hon. Gentleman's questions, I see no reason why this agreement should affect the interests of this country, and I would not regard this as a basic change in the international monetary system. The right hon. Gentleman will remember that there was a discussion at Zest on whether there should be a system under which gold could be exchanged between monetary authorities voluntarily, if they wished, at prices related to the market price. There was discussion of that proposition with the United States. What last night's agreement appears to amount to is that these gold resources can be pledged against borrowing from monetary authorities rather than sold between monetary authorities. In other words, it appears to be a compromise between what was suggested at Zest and the well-known

American position. I do not think that it represents a basic change in the international monetary system.

Mr. Norman Lamont: Is the Paymaster-General aware that, although the United States Treasury has indicated that this is to be interpreted as a move towards the phasing out of gold, it will also be very much welcomed by those who believe that it is only realistic that gold should have an important part to play in the world system? Does not the Paymaster-General agree that once one has moved to the stage of allowing gold to be used as collateral for loans and once the gold might actually be transferred to the people who are lending the money, it is now only logical that central banks should be allowed to buy gold on the free market?

Mr. Dell: The general intention of the Committee of Twenty and the Group of Ten, as I have said, is to reduce the rôle of gold gradually to phase it out of the monetary system. There has never been any intention that the gold that exists in the reserves of member countries should not be available in some form in appropriate cases. Here is a particular case in which an agreement has been made which assists a particular country in difficulties.

Mr. Duffy: As this is obviously an end to the policy of demonetisation of gold, may I push a stage further the question posed by the hon. Member for Kingston-upon-Thames (Mr. Lamont) and ask my right hon. Friend whether any instructions have been given to the Bank of England about gold purchases?

Mr. Dell: No, that does not arise out of this Question.

Mr. Tugendhat: Is the right hon. Gentleman aware that his statement will look most extraordinary when read in the cool light of day? What has happened is that this decision about gold is in many ways a historic decision. It may seem only a transient matter, but it is a reversal of a long trend towards the demonetisation of gold and is obviously a major step forward. One recognises that the right hon. Gentleman cannot make a definitive statement at this stage, but to talk of minor technical points needing to be ironed out shows, it would appear, a total misunderstanding of the importance


of what has happened. Can the right hon. Gentleman give any indication to the House of what the present Government's attitude might be towards setting a value on gold should it be used to any great extent? Does he not also agree that, in the light of the persistent policy of British Governments to run down our own gold holdings, to say that this decision has no effect—or words to that effect—on this country really is a misrepresentation?

Mr. Dell: This arrangement in no way introduces an official price for gold. As I have said, there has never been any idea that those countries which have gold reserves should not be able to use them in some way in appropriate cases as part of their own liquidity. Here was a case where it was necessary to make a decision in order to help a particular country. I hope that it will achieve that objective. That is the significance of the decision.

Mr. English: Does my right hon. Friend realise that when he uses the phrase "the official price of gold" all that he means is that any of us may sell something to anyone else at less than its market price? Does he recall the great arguments which went on originally before a free market in gold was created about the assistance that raising the price of gold would give the economies of Russia and South Africa? What is his view on this step in the light of those arguments?

Mr. Dell: One of the problems about gold is precisely that it is unequally distributed throughout the world. The developing countries have taken the view that to raise the price of gold would simply enrich the rich countries. One of the troubles is that no one knows what the free market price of gold would be if the central banks were selling it. It might be well below the current market price.

Mr. Hordern: Does the right hon. Gentleman accept that many of us feel that the place of gold has now been realistically assessed and will be found to be restored to a value which will become more widely accepted? Will the right hon. Gentleman also draw the attention of his right hon. Friend the Chancellor of the Exchequer, when he returns, to the need for an authoritative statement soon

on some form of institutionalised and international control of the growth of the Eurodollar market itself?

Mr. Dell: I shall draw that point to my right hon. Friend's attention.

Mr. George Cunningham: Whether or not we agree with this decision, ought we not to congratulate the Government of France on one further victory along their consistent path over the past few years? Can my right hon. Friend say which of the members of the European Community will have the nominal and effective value of their total reserves most upgraded by this decision?

Mr. Dell: I think that the amount of gold in the reserves of different countries is fairly well known.

Mr. Heath: Is the right hon. Gentleman aware that we cannot accept that this is merely a small technical matter which was decided over dinner? It is a matter of considerable importance. Can he say what is the precise, logical difference between gold as collateral at market prices against international loans and revaluing all reserves, including gold, at market prices? Once gold is used as collateral at market prices, there is no reason why gold in reserves should not be revalued at market prices, which would be a major change in the international monetary system.

Mr. Dell: The value of gold as collateral will have to be discussed between the borrower and the lender. In this case, that will have to be the position as well. It is not possible for me to say what that value will be. All that I can say is that this decision does not mean that there is now a new official price for gold.

BUSINESS OF THE HOUSE

Mr. Heath: May I ask the Leader of the House to state the business for next week?

The Lord President of the Council and Leader of the House of Commons (Mr. Edward Short): Yes, Sir.
The business for next week will be as follows:

MONDAY 17TH JUNE—Second Reading of the Consumer Credit Bill [Lords] and of the Control of Pollution Bill [Lords.]

TUESDAY 18TH JUNE—Remaining stages of the Health and Safety at Work Etc. Bill.

Second Reading of the Ministers of the Crown Bill.

WEDNESDAY 19TH JUNE—Progress in Committee on the Finance Bill.

The Chairman of Ways and Means has named Opposed Private Business for consideration.

THURSDAY 20TH JUNE—Supply (8th Allotted Day): Until seven o'clock, debate on an Opposition Motion on Labour's Plans for Industry, and afterwards, also on an Opposition Motion, increased tariffs for night storage heating.

Remaining stages of the Ministers of the Crown Bill.

Second Reading of the Pakistan Bill.

FRIDAY 21ST JUNE—Consideration of Private Member's Bills.

MONDAY 24TH JUNE—Second Reading of the Railways Bill, and of the Policing of Airports Bill.

Mr. Heath: Perhaps I might ask the Leader of the House three questions. Five weeks ago the Secretary of State for Social Services made her statement that she wished to abandon the larger part of the 1973 Act by an order which was not debatable in this House. The right lion. Gentleman undertook to arrange a debate about it. May we have some indication of when that will be?
My second question relates to reports that the Government have now reached conclusions about the nuclear reactor programme. If that is the position, when are we likely to have a full statement about it?
My third question relates to Thursday's debate on Labour's plans for industry. May we be told what special parliamentary arrangements are being made to enable the debate to be answered either by the General Secretary of the Labour Party or by the General Secretary of the TUC?

Mr. Short: Dealing with the first of the right hon. Gentleman's questions, he is right that I promised a debate on this matter. I hope that it will be possible to arrange this in the week after next. I hope so, anyhow.
The right hon. Gentleman's second question was about nuclear reactors. My right hon. Friend the Secretary of State for Energy will be making a statement within the next two or three weeks.

Mr. Lipton: May we have a progress report at an early date on the car park in New Palace Yard, which is now many months' delayed in its completion and is costing many thousands of pounds more than the original estimate?

Mr. Short: I cannot give a report on the car park. But on the landscaping of New Palace Yard we have had a Report from the Services Committee, and I hope to find time to debate this before the recess.

Mr. Tom King: The Leader of the House will recall that before the recess I raised with him the possibility of a statement being made by the Secretary of State for Industry on proposed plans for the nationalisation of further sections of industry. We have still not had a statement in the House. Are we to take it that now that the Prime Minister has assumed responsibility for these matters he will be making a statement before the debate?

Mr. Short: The Opposition have put down this subject for a half-day debate next week. I have no doubt that the hon. Gentleman and his right hon. and hon. Friends will deploy their arguments then.

Mr. Cryer: Can my right hon. Friend find time to debate the proposed French nuclear tests? In view of the dangerous amount of atmospheric pollution which may be released, can he assure us that our membership of the EEC does not impinge upon our right to criticise those tests? In view of the fact that India has also made a nuclear explosion, is not the non-proliferation of nuclear weapons an urgent matter for a debate in this House?

Mr. Short: I cannot find time to debate the tests before the recess, but my hon. Friend will be pleased to know that my right hon. Friend the Foreign and Commonwealth Secretary sent for the French Ambassador last night and made representations and protests to him.

Mr. John: Mr. John Davies: The right hon. Gentleman will be aware of the First


Report of the Committee considering secondary European legislation. When are we likely to debate the issue which that Committee found to be of such importance that it warranted a debate on the Floor of the House?

Mr. Short: The scrutiny committee, of which the right hon. Gentleman is chairman, has sent three orders to the House for debate. The first of them is of very great importance. I understand that the Council of Ministers will not discuss this again until mid-July, but I undertake that we shall have a debate on it before then.

Mr. Arthur Latham: Does my right hon. Friend see any prospect of our discussing Early-Day Motion No. 153 on the renegotiation of the terms of membership of the EEC, which has already been signed by some 89 members?
[That this House recalling and reaffirming the Resolution of the Labour Party on Common Market membership as follows:

'The Labour Party opposes British membership of the European Communities on the terms negotiated by the Conservative Government,

'We have said that we are ready to re-negotiate, and in preparing to renegotiate the entry terms, our main objectives are these:

'Major changes in the Common Agricultural Policy, so that it ceases to be a threat to world trade in food products, and so that low-cost producers outside Europe can continue to have access to the British food market;

'New and fairer methods of financing the Community Budget. Neither the taxes that form the so-called "own resources" of the Communities, nor the purposes, mainly agricultural support, on which the funds are mainly to be spent, are acceptable to us. We would be ready to contribute to Community finances only such sums as were fair in relation to what is paid and what is received by other member countries;

'As stated earlier, we would reject any kind of international agreement which compelled us to accept increased unemployment for the sake of maintaining a fixed parity, as is required by

current proposals for a European Economic and Monetary Union. We believe that the monetary problems of the European countries can be resolved only in a world-wide framework;

'The retention by Parliament of those powers over the British economy needed to pursue effective regional, industrial and fiscal policies. Equally we need an agreement on capital movements which protects our balance of payments and full employment policies. The economic interests of the Commonwealth and the Developing Countries must be better safeguarded. This involves securing continued access to the British market and, more generally, the adoption by an enlarged Community of trade and aid policies designed to benefit not just "associated overseas territories" in Africa, but developing countries throughout the world;

'No harmonisation of Value Added Tax which would require us to tax necessities;

'If renegotiations are successful, it is the policy of the Labour Party that, in view of the unique importance of the decision, the people should have the right to decide the issue through a General Election or a Consultative Referendum. If these two tests are passed, a successful renegotiation and the expressed approval of the majority of the British people, then we shall be ready to play our full part in developing a new and wider Europe.

'If renegotiations do not succeed, we shall not regard the Treaty obligations as binding upon us. We shall then put to the British people the reasons why we find the new terms unacceptable, and consult them on the advisability of negotiating our withdrawal from the Communities'.

'An incoming Labour Government will immediately set in train the procedures designed to achieve an early result and whilst the negotiations proceed and until the British people have voted, we shall stop further processes of integration, particularly as they affect food taxes. The Government will be free to take decisions, subject to the authority of Parliament, in cases where decisions of the Common Market prejudge the negotiations. Thus, the right to decide the final issue of British entry


into the Market will be restored to the British people'.

would regret any diminution of these terms in the course of the renegotiations.]

My right hon. Friend will recall that last Tuesday there was no vote because of the ineptitude of one section of the Opposition and the incontinence of the rest. Does my right hon. Friend agree that it is desirable that at some early stage, beyond debating the issue of Europe, this new House of Commons should go on record indicating the terms of renegotiation which it wants to see aimed for?

Mr. Short: We have had a whole day's debate on this subject this week. I cannot find any other time for a debate before the debates which will arise as a result of the Foster Report. I have made a statement to the House on that and I have just promised the right hon. Gentleman a debate on the first of the three instruments which the scrutiny committee recommended to the House for discussion.

Mr. MacGregor: In view of the unprecedented revolt among ratepayers in rural areas this year, and bearing in mind the hardship and distress which will be caused to many of them, as well as the close interest which hon. Members are taking in the subject, will the right hon. Gentleman consult the Secretary of State for the Environment with a view to having an early debate on changes in the rate support grant formula for next year —certainly before decisions are taken on the formula?

Mr. Short: I share the hon. Gentleman's concern about rate rises. I shall pass on what he says to my right hon. Friend, but I am afraid that there is little time before the Summer Recess and I cannot promise a debate before then.

Mr. Bates: Has my right hon. Friend seen Early-Day Motion 125 calling for a public inquiry into the James Hanratty case? This early-day motion is supported on both sides of the House. Is my right hon. Friend aware of the concern not merely in the House but in the country at large, and will he arrange either for an early debate, so that my right hon. Friend the Home Secretary can be made aware of the feeling of

hon. Members, or alternatively for the Home Secretary to make a statement on the subject?
[That, in view of the widespread and serious public doubts about the verdict in the Hanratty case and in view of new evidence which is now available, this House calls upon the Secretary of State for the Home Department to set up a public inquiry to review the case.]

Mr. Short: I am afraid that I cannot promise either a debate or a statement but will certainly refer to my right hon. Friend the Home Secretary what my hon. Friend has said.

Mr. Rost: When are the Government to find time to debate, or at least make a statement on, the social compact or contract, which vast sections of the country do not understand, particularly those people who have so far been on the receiving end of it?

Mr. Short: My right hon. Friend the Secretary of State for Employment wishes to ensure a smooth transition from a statutory to a voluntary system, and before the Summer Recess he will be publishing his plans to do so.

Mr. Hugh D. Brown: Is my right hon. Friend aware that the people of Scotland are waiting with some impatience, though confidence, for a statement from the Minister for the Civil Service about dispersal of civil servants? Is this statement likely to be made next week?

Mr. Short: I am afraid that cannot be next week, but I am hopeful that there will be a statement before the Summer Recess which will satisfy my hon. Friend.

Mr. Madel: Will the right hon. Gentleman ask the Secretary of State for Employment to come to the House tomorrow morning and make a statement about the dispute in the provincial newspaper industry? If it goes on, there will be consequences which will be as serious in Newcastle as in South Bedfordshire.

Mr. Short: Meetings are being held on this matter today, as the hon. Gentleman knows, and I think it better to await the outcome of these meetings.

Mr. Faulds: Are there any representations to ensure prompt delivery of my mail, including letters from my constituents, that my right hon. Friend could


usefully make about the appalling postal deliveries in Central London? Further, can he take any action about the telephone service in the House, which is slipping badly due to staff shortages in the Post Office here?

Mr. Short: I shall pass on what my hon. Friend has said to my right hon. Friend the Secretary of State for Industry.

Mr. Hurd: Can the right hon. Gentleman clear up two points about the announcement on the handling of European Questions which his right hon. Friend made on Tuesday? Can we take it that when Questions are tabled on European aspects which are the work of a particular Department it will still be the case that the Minister concerned at the head of that Department will answer the Questions and that they will not be transferred to the Foreign Office? Has the right hon. Gentleman noticed that half the Questions tabled to the Foreign Secretary are on Europe? If they have to be taken out, separated and penned together in the last 20 minutes of Foreign Office Questions, might we not have less opportunity to ask Questions about Europe than we had before?

Mr. Short: With regard to the second part of the hon. Gentleman's question, I shall look into that. Regarding the first part, I refer him to my statement about the Foster Report.

Mr. Harry Ewing: In view of the publication of the document "Devolution in the United Kingdom", and the Government's decision to seek views over as wide a range as possible, does my right hon. Friend intend to arrange a debate on the document before proposals are formulated? If that is the intention, will my right hon. Friend consult the Scottish National Party, which appears to have gone on strike against the Scottish electorate and ensure that this matter is not shunted off to the Scottish Grand Com-mite but is discussed on the Floor of the House?

Mr. Short: I cannot promise a debate on this before the recess. But the consultative document has been published, and consultations will start in Wales and Scotland in the first week of July and will be completed before the end of July.

Mr. Fletcher-Cooke: In answer to a previous question the right hon. Gentleman said that there was little time before the Summer Recess. That implies both that the recess is imminent and that the right hon. Gentleman knows when it is to begin. When will it begin?

Mr. Short: It all depends on how we get on with our business.

Mr. Ferny Hough: Can my right hon. Friend say that when the statement on the dispersal of civil servants is made the news which it contains will be as gratifying to my ears as it will be to the ears of Scottish Members?

Mr. Short: Knowing my right hon. Friend's concern for all the areas and regions of Britain, I am sure that the statement will be as gratifying to his ears as it will be to the ears of others.

Mr. Bruce-Gardyne: Can the right hon. Gentleman give any indication when he expects to give an opportunity for the House to debate the O'Brien Report? He must be aware that it seems very hard to many of our constituents that they have to face imports of subsidised beef and are not allowed to resume a trade which the committee found to be perfectly within the public interest. Can the right hon. Gentleman give an assurance that we shall be able at least to debate the report and that a decision will be made before the Summer Recess?

Mr. Short: I am afraid I cannot give that undertaking. I shall try to arrange to hold a debate as soon as possible, but I cannot give a firm promise that it will be before the Summer Recess. The undertaking which I have already given stands, that the trade will not be resumed before the House has an opportunity to debate it.

Mr. Dalyell: Since, like it or not, the problems of Ireland are ever present and may require many hours of parliamentary time before the next four months are up, can my right hon. Friend outline his plans regarding consideration of matters and legislation affecting Ireland?

Mr. Short: I am afraid that I cannot outline the plans, but if legislation is necessary it will be brought before the House as soon as possible.

Mr. Teddy Taylor: In view of the operation of threshold agreements, will


the right hon. Gentleman urge the Secretary of State for Employment to make an early statement on the studies being made on the introduction of the Scottish cost of living index, as it is unfair to Scottish employees if their threshold is based on costs which do not apply to them?

Mr. Short: I shall pass on the hon. Gentleman's comments to my right hon. Friend.

Mr. English: One gathers that the Boyle Committee has now met. When will it report?

Mr. Short: I hope that it will report in the near future. Lord Boyle hopes to conclude his study by the end of this month, and it is hoped to report to the House before the recess.

Mr. Michael Latham: Do the Government intend to introduce legislation before the Summer Recess relating to the Misselbrook Report concerning labour-only sub-contracting?

Mr. Short: I am afraid that that will not be before the Summer Recess.

Orders of the Day — FINANCE BILL

(Clauses 5, 6, 1, 9, 10, 11, 13, 14 and 19 and new Clauses relating to the matters referred to in the Order of the House [9th May].

Considered in Committee. [Progress 10th June.]

[Mr. GEORGE THOMAS in the Chair]

The Chairman: Before I call the first amendment I should inform the Committee that the preliminary motion in the name of the Chancellor of the Exchequer has reappeared on the Order Paper by error. It has, of course, already been agreed to.

Clause 14

CASES I AND II OF SCHEDULE E

4.0 p.m.

Mr. Michael Shaw: I beg to move Amendment No. 68, in, page 11, line 21, at end insert:
' and subject to an exception for the years 1974–75 and 1975–76 where the emoluments are foreign emoluments'.
I am grateful for the explanation that you have just given, Mr. Thomas.
We are now moving in our consideration of the Finance Bill to a stage where we shall be dealing with Clauses 14 to 18. Admittedly, we are here concerned only with Clause 14. But the whole group together with Schedule 2 are concerned with the new arrangements for taxing foreign income as promised by the Chancellor of the Exchequer in his Budget speech at col. 315.
The right hon. Gentleman said:
My predecessor informed the House that a review of the whole subject was being undertaken by the Inland Revenue and that he would take account of the result of this in his 1974 Budget. This task now falls to me."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 315.]
The amendment is concerned not so much with the actual changes set out in the clauses but with delaying them. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) set a good


example when Chancellor in giving time for the House and the country to assess the value of legislation before it was passed, so that prior comment could be full and informed. This is why I am particularly anxious that that good example should be followed in this case.
The changes in Clause 14 affect two types of person. The first is someone living and working in this country who goes abroad and is paid abroad for work that he does there. Up to date he has paid United Kingdom tax only on sums remitted to this country and not on the whole salary. If the clause is not amended, he will, subject to special allowances contained in Schedule 2, have from now on to pay United Kingdom tax on the whole salary, whether or not it is remitted. Of course, he will also have to pay the appropriate tax in the country in which the income arises. The other type of person concerned is someone domiciled abroad but living here and working for a foreign company. Here again, up to now the liability to United Kingdom tax has arisen only on that part of the salary remitted to this country.
The law relating to taxation of foreign earnings by United Kingdom residents has existed for a long time. As with all taxation law, over the years this law has at times, been used in a way which was not originally intended, but there was good reason in the first place for taxing foreign earnings differently, and those reasons are probably stronger today than ever. They take into account the different rates of tax here and in many other countries.
The people most concerned with this type of income are in management. Whatever the Labour Party may say, the high rates of tax suffered by our management classes are a deterrent not only to the managers here but to those seeking to come here to work. I therefore want to make sure that the changes in the clause come about after plenty of time for public discussion, so that we can be as certain as possible that they will not seriously damage this country by discouraging enterprise, by discouraging new businesses from coming here from abroad and possibly by encouraging management here to think about emigrating.
That is not idle speculation. On 12th June, in a report headlined "Foreign 
company deterred by new UK tax rule", the Daily Telegraph said:
At least one major investment project by a foreign company has been cancelled so far as a result of the Government decision to tax foreigners working in Britain.
It went on:
It is believed the investment was planned by a major electronics group in Wales, but the tax change is said to have tipped the balance against a new plant being located in the United Kingdom.
This is the sort of thing that can damage our economy and our expansion prospects. I want to guard against it by delaying the implementation of the clause.
Of necessity, both the clause and the amendment are very technical. One has to consider whether a person is "resident", whether he is "ordinarily resident" and whether he is "domiciled" in this country. Several distinctly puzzled people have asked me in the last few days what these strange terms mean. They have often puzzled legal luminaries with far greater knowledge of the law than ourselves, but I will venture on a short explanation.
A person is resident in this country, for example, if he is physically in this country for six months or more, if he shows by the pattern of his living that he visits the country year after year or if he has accommodation here which he visits during the tax year—although there are exceptions to that last category. Each case has to be looked at on its merits, and these are only examples of cases which have arisen. One can be resident in more than one country at the same time. As for "ordinarily resident", I can only say that ordinary residence denotes a greater permanence and that perhaps one could regard an ordinary residence as being the place in which one has habitual presence.
A learned judge has said that this matter of residence is a matter of common sense. Perhaps I need say no more. Any lawyer will confirm that anything that depends on common sense involves great complications. Someone has said that this country is ruled not by logic but by Acts of Parliament; nowhere is that more true than in dealing with the subject of residence.
The matter is made the more complicated and confused by a Ways and Means motion which we shall consider later, under which "residence" in certain circumstances will be the same as "domicile". Under another proposal the phrase "ordinary residence" can be amended so that the word 'ordinary' is omitted. Domicile can be regarded as one's permanent home even if one does not live there. This too has been described by tax pundits as being a very difficult subject.
My amendment is limited. I fully accept that if it is accepted other amendments would have to follow in its train. I seek not to alter the proposal but a delay of two years in implementing the tax changes in respect of foreign emoluments. Let us suppose that a United States company employs an American citizen to run its European operations from London or to run its British branch in the United Kingdom. Up to now that United States citizen living here would only have had to pay United Kingdom tax on that part of his remuneration which has been remitted to him here. He would have had to pay United States tax, with certain allowances given to people living abroad.
During 1974–75 and onwards, under the clause as it stands, that remuneration, subject to the Schedule 2 allowance, will be subject to United Kingdom tax. Since the allowance is 50 per cent., it means that 50 per cent. of that remuneration, whether or not remitted to this country, will suffer United Kingdom tax. Without any period of grace, the person is faced with what could be a substantial change in his tax circumstances.
If his contract of service and his commitments in respect of housing, education, etc., were all taken in good faith in the light of the existing tax law, which was known at the time he made his arrangements, he could well have assumed that our tax law was designed to encourage this United States company to set up its establishment in this country and its employees to live and work here. My amendment seeks to give a two-year period of grace so that he would have a chance of re-assessing the position. This provision would not then apply to him until the year 1976–77.
Not only would this be much fairer to those foreigners such as this American,

who may have been attracted to working and living in this country by the existing law, but it would also put the taxing of foreign emoluments on a par with the taxing of foreign investment income of similar persons; that is to say, persons who are ordinarily resident but not domiciled in this country. Under Clause 18 such people will continue to be taxed only on the income received in the United Kingdom until 1976–77, at which date they will become subject to the nine-year residence tax.
It appears unjust that the changed law should be operated immediately in the case of the foreigner receiving pay or pension from abroad, whereas if his income from abroad takes the form of investment income the change of law will operate only after two years, and then only if he has been here for nine years. It seems particularly unjust since an employed person is under instruction and is not an entirely free agent as to where he works and therefore lives. A man living on his investment income presumably is free to live where he likes.
I hope I have put this amendment moderately. These clauses involve a review of a difficult field of tax law. The Chancellor has already felt it right to alter this taxation in one respect; for instance, under Clause 18.
4.15 p.m.
We tax management far too heavily in this country. Tax tends to deter management from coming here. I have given an example of the effects it is likely to have. It tends to encourage management to leave the United Kingdom. Do not let us act too hastily in changing this law. In two years' time we shall have a much truer picture of the consequences of this action. The two-year delay in implementation proposed by this amendment will be in the national interest.
I ask the Government to accept this amendment in the spirit in which I have moved it even if they cannot accept the exact wording.

Mr. Terence Higgins: The Committee will be grateful to my hon. Friend the Member for Scarborough (Mr. Shaw) for the extremely lucid way in which he has explained a number of technical aspects of the clause which we are now debating. It is important that


one should clarify the considerable obscurity of the clause as it is drafted.
There was a remarkable situation where for the earlier part of my hon. Friend's speech—given that we were told by the Government that this is a matter of great political importance—there was not one person on the Government side of the Chamber other than those sitting on the Front Bench. It is true that one or more have now come in. None the less, that is a very remarkable fact. Even the hon. Member for West Lothian (Mr. Dalyell) was not here. That shows a lack of enthusiasm on the part of the Government back benches. The hon. Member has returned now and we are glad to see him.
My hon. Friend has pointed out that the clause is divided into two parts, the Case I part, which is concerned with the United Kingdom resident who is operating abroad, and the Case 2 part of it, which is concerned with the non-United Kingdom resident who is operating in this country. The way in which the Government have widened the scope of the problem, which was already under debate, is extraordinary—that is to say, the question of whether there was some abuse of the provisions for the taxation of people from this country who were working abroad—because in the Chancellor's Budget Statement he, almost as an afterthought, threw in this suggestion:
My hon. Friend the Chief Secretary will later announce somewhat similar proposals applying to foreigners temporarily working in Britain whose employer is resident abroad. Obviously, they are not in quite the same position as persons who live here on a permanent basis and they will be assessed to tax on half of their earnings."—[OFFICIAL REVORT, 26th March 1974; Vol. 871, c. 316.]
It is quite extraordinary that, having isolated a particular form of abuse, the Chancellor should, by way of afterthought, include this other category of people. But the reality of the situation, while we on this side of the Committee accept that there have been abuses in both cases, is that there are very grave dangers if one adopts what the present Government have frequently adopted—a shotgun approach to this kind of problem.
Our balance of payments gains very considerably from the earnings of people from this country who work abroad for varying periods. We gain considerably

from those people from overseas who work here, who not infrequently bring with them considerable financial resources and investment to this country and help to encourage the situation that London is indeed the financial centre of the world.
The amendment is concerned with the first of these categories—the position of the United Kingdom resident working abroad. I want to concentrate now upon that category and we shall turn to the second case later. It is remarkable that the two should have been put in together almost, it appears, as an afterthought of the Chancellor of the Exchequer.
I should make clear another point at this early stage. The amendment seeks to delay implementation of a particular part of the clause. There was also an amendment—No. 71—which would have sought to have delayed the operation of the whole clause. But amendments of that kind are not normally selected because they tend to be out of order. Even a series of amendments designed to delay different parts of the clause are also likely to be out of order. Nevertheless, my hon. Friend has made the general point, which is very important, that this legislation has been produced in considerable haste to cover both the cases I have mentioned.
This is in marked contrast with the view which my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) and the Conservative Government always took—that if we were to make changes in the fiscal system, particularly those which could have dangerous effects on the overall position of the country, the sensible way to do it was to have thorough consultation to ensure that those who had interests and a case to put were enabled to do so before the House of Commons was asked to legislate. That is why the hallmark of our tax reform proposals was the Green Paper approach. It would thereby have been possible to deal with some of these problems without the kind of extensive shotgun approach the Government have adopted. If the Government had wanted to do anything like this, it should have been subjected to the most careful public debate before legislation.
This is the essence of my hon. Friend's remarks, and it is unfortunate in many ways that his is not a general delaying


amendment. But that was not technically possible. I hope that those who take an interest in these matters outside will realise that it is only for technical reasons that we are not suggesting that the clause as a whole should have more careful scrutiny before we are asked to make a decision on it.
The reality of the situation in relation to abuses which may take place in both cases is not simply that the Chancellor of the Exchequer is effectively throwing out the baby with the bathwater but that he is drowning the baby before he throws it out. He is rushing into this legislation in a way which the CBI, for example, has suggested is very wrong. It takes the view that the right approach would be to discuss the matter more fully before action is taken. This is not to say that we do not recognise that there may be abuses in both cases covered by the clause. But the danger in taking hasty action is that it has serious effects on the economy and the standard of living of the country as a whole.
The other point one should make is that, given the haste with which this provision has been introduced, the extent of the representations which we have had on the effect of the clause is quite remarkable. My experience in the House goes back for 10 years, and I do not recall such a weight of representation as I have had on this occasion from those who feel that their legitimate interests will be affected by the Chancellor's proposals.
For example—and no doubt my hon. Friends will wish to elaborate and enumerate others—we have the case of those who go overseas on behalf of mining interests. A great many of them go for a comparatively short period—we shall return to the question of the 365-day rule and so on later—because of necessity their firms have to send experts abroad. These people will be caught by the clause. As a result, firms will find it difficult to get their experts to go abroad because the tax disadvantages in doing so will be considerable compared with the existing situation. Yet such operations may well bring very considerable advantage to the United Kingdom balance of payments. They are entirely legitimate but necessitate experts going

abroad for a short time, returning to base, then going abroad again, and so on.
A second group—and again no doubt my hon. Friends will produce other examples—is consultants generally— consultants in economics or management, or those engaged in particular scientific operations of one kind or another. The same situation applies to them.
A third group about which we have had representations is that of academics going abroad for a sabbatical year. I have always taken the view that the exchange of academics across international frontiers is of great advantage to this and other countries. I want to quote a letter from someone working at a university. It says:
I now have a letter from my accountant which says that, in his opinion, 90 per cent. of the income I receive for working as a professor …
at an American university—
which I do two or three months a year and intend to do for 5 or 6 months after I retire, will be taxable as English income with no allowance at all for expenses. This means that I cannot even charge my air fare … and get no allowance at all for the cost of living there. Clearly any conceivable trip under these circumstances would show a large loss. If this goes further I really don't feel that I shall be able to stay in this country.
That brings out the shotgun approach which the Government have engaged in. In seeking to catch some particular abuse, they are considerably inhibiting and perhaps totally frustrating a number of legitimate operations from which everyone in the country in general is likely to gain.
A number of cases arising from this complex of clauses have been brought to my attention—for example, that of Professor Harry Johnson, of the London School of Economics, for whom I, like many others, have the highest respect as an academic of the very first rank and from whom academic life, particularly of economists, in this country, has gained over the years. Now we hear with regret that, if this legislation goes through as it is, he will not feel it possible to maintain what has been a very fruitful occupation both in this country and overseas, in the United States and elsewhere.
I quote this as an example of the way in which introducing rushed legislation of this kind is likely to have such effect. The real danger is that rushed legislation very


often produces rushed reactions. A number of us will have heard of people who, even in advance of legislation, have said "If this is the kind of attitude that the Government are going to adopt to people in our position, we will have none of it and will go anywhere because we do not know where we stand."
Many of these arrangements—not the short-term arrangements of visiting professors and so on—may well be on a long-term contract basis. Later we shall discuss the effect on groups of people who have made long-term contracts. Such people have taken long-term decisions which at this stage they can unscramble only with considerable personal loss and perhaps complete disruption of their family life. This is the kind of thing that is likely to happen as a result of this provision. We therefore do not feel that this rapid legislation, designed to tackle particular abuses—we do not say they should not be tackled—is the right way of going about things. We do not favour this broad shotgun approach.
Naturally, we shall seek later to ameliorate the overall effect of this provision, but my hon. Friend was right to propose this amendment. I hope that the Chief Secretary will feel that a moratorium of this sort would be appropriate. The damage which could be done to the economy is considerable in both Cases covered by the clause. I hope that we shall manage to persuade the Government that they ought to have second thoughts about this and rethink the overall approach.

4.30 p.m.

Mr. Tam Dalyell: As one who shares an equal affection for Professor Johnson and who was also, like the hon. Member for Worthing (Mr. Higgins), supervised by him, I must say that I do not think that his is the happiest of examples. The hon. Gentleman knows, and I know, that this is Professor Johnson at his most provocative. He was trailing his coat. If this example is to be used, certain other questions have to be asked. Should we shed many tears for Professor Johnson when we compare his problems with those faced by millions of others in our society?
When Professor Johnson writes that he cannot keep going, these are just his peculiar standards, not the standards,

of most of us. It is a rather unfortunate example. I am curious to know why The Times thought it of sufficient importance and general application to put in on the front page.
I, too, have had a number of letters about this subject. On a factual point, is it true, as some of our correspondents claim, that they will not get tax relief on the various genuine expenses they incur, such as travel? Secondly, will the man who goes abroad for nine to six months be disadvantaged as against a man who goes for two years?

Mr. Hugh Fraser: I congratulate my hon. Friend the Member for Scarborough (Mr. Shaw) upon the extremely temperate way in which he has moved his amendment in an attempt to get the Government off a considerable hook. Many of us admire Professor Harry Johnson. Both Front Benches would have done much better today if they had received a few lessons about the gold standard from him. We had instead a lamentable display by a total ignoramus who, I think, is called the Paymaster-General. Whatever the wretched creature was called, he made a complete fool of himself for a quarter of an hour this afternoon.
If the Treasury had listened a bit more to Harry Johnson this country would have had more gold in its reserves today. This mismanagement will cost the country hundreds of millions of pounds.

The Chairman: Order. Perhaps the right hon. Gentleman will confine himself to the amendment.

Mr. Fraser: I accept your rebuke, Mr. Thomas. I come back to this question of Professor Harry Johnson and say that it would have been of great value to both Front Benches had they paid more attention to his advice. It is a cause for genuine sorrow that he should now be departing.
Perhaps the Chief Secretary could look carefully at a few other comparisons. This does not just affect the academic world, for which we know some back benchers opposite have a terrible contempt. They regard people in that world as being overpaid. We have the usual phoney stuff which comes from those who are fortunately absent this afternoon. The hon. Gentleman must realise that a good part


of our exports depend upon follow-up services. He ought to consider some of the tax advantages afforded to American, French or Dutch engineers and technicians working for their national interests overseas. In all of these cases he will find that the British engineer or technician is at a great disadvantage. This must affect our export chances because so much of our export sales, especially in engineering, depends upon follow-up services. I hope that the hon. Gentleman will cogitate with his advisers about this.
The wider point can be expressed in a simple way, by asking whether this will be investment advantageous to this country and what will this tax bring in. The collection is a purely voluntary one because those who find this tax intolerable will leave, like Professor Johnson. We shall create a Euro-engineer pool or a world engineer pool in the same way as we have, through the stupidity of various Governments, created a Eurodollar, which is under no Government control at all. We shall get precisely the same thing with human beings. They will have no loyalty to Labour Members, least of all to the Chancellor, who cannot make up his mind whether he is a Socialist or a Communist.
The right hon. Gentleman is a strange Jekyll and Hyde creature who talks occasionally about screwing the rich and then about the great advantage of the patriotic endeavors of industrialists who support his measures. Leaving aside the psychiatric treatment which will one day come to the Chancellor, there will be; considerable dangers in the creation of this pool of people who have no attachment to this country and who will fare much better when employed outside it.
I hope that the Chief Secretary will give us some ideas about what this tax will bring in and will make some calculation of the damage it can do to investment and of how it will cause us to lose experts on whose training we have expended thousands of pounds. The national investment in a technician can be £50,000 to £60,000. If such a person leaves, that is the loss we suffer. I hope that the Government will show a little more sense and will not pay quite so much attention to the Chancellor in his "Hydish" mood or to Labour back benchers in their more raucous moods saying "Squeeze the rich till they

squeak". I hope he will apply his mind to a more rational approach to the taxation of technical, better-trained, people.

Mr. Peter Hordern: I am happy to support my hon. Friend the Member for Scarborough (Mr. Shaw). This is an important amendment because of its effect on all those citizens from other countries who have been in this country for some time and are probably at the height of their powers and are certainly of great benefit to our economy. Under the Bill those who have been here eight years are enabled to make a deduction of 50 per cent. of their foreign emoluments before they pay tax. Should they remain here for over nine years they will become liable to what can only be described as the most penal conditions of this Bill. The amendment delays the impact of the proposals until those who are affected have had further time to consider them.
Let us take, for example, the case of the American executive who has lived in this country for eight years. I understand that he will be liable—

The Chief Secretary to the Treasury (Mr. Joel Barnett): The hon. Gentleman is talking about Clause 18. We are talking about something rather narrower in Clause 14.

Mr. Hordern: I do not quite follow the Chief Secretary. The argument has proceeded widely and I distinctly heard my hon. Friend speak eloquently about these very matters. I am talking about the impact of the proposals as a whole which are summarised in Schedule 2, which is the schedule to this clause.
The impact is due to occur in the year 1974–75. The amendment proposes that the impact should occur later. My hon. Friend the Member for Worthing (Mr. Higgins) suggested that there must be further time for considering the impact of the proposals. The impact is large on executives of important overseas companies based in this country. I can think of many overseas companies which operate management advisory services of considerable benefit to our economy. McKinsey and Company, Inc. advised numerous companies in this country and, indeed, the Government and overseas Governments. American citizens with McKinsey have been over here for many


years and regard this country as the centre of their working operations. It is only reasonable that they should have time to adjust their affairs. If the proposals in the Bill are implemented those people will have to consider whether they can remain in this country at all.
The same is true of important American organisations concerned with finance for industry and invisibles. These concerns, many of which are American, have come here recently to participate in the growing Eurodollar market. Whatever one's apprehensions about the growth of the Eurodollar market—and I share the apprehensions of my right hon. Friend the Member for Stafford and Stone (Mr. Fraser)—the market is growing rapidly because of the large increase in the supply of money which is to be made available to pay for Arab oil. These banks have come here recently, they participate in the Eurodollar market and often represent considerable invisible earnings to our country.
I have met the chairmen and managing directors of some American banks, and they have told me that unless the Finance Bill is amended satisfactorily they will be forced to return home and their operations will have to be carried out by United Kingdom subjects who will not necessarily be versed in the way in which American banks operate.

Mr. John Horam: The amendment deals only with the first of the two Cases mentioned by the hon. Member for Worthing (Mr. Higgins); that is to say, British people working abroad and remitting money back here. It does not deal with American citizens living over here.

The Chairman: The hon. Member for Gates head, West (Mr. Horam) may leave it to me. I shall have to work very hard to do so, but if I find that the hon. Member for Horsham and Crawley (Mr. Hordern) is straying I shall pull him up.

Mr. Hordern: I am grateful to you, Mr. Thomas. I trust your judgment absolutely. Furthermore, I am certain that you have a great deal more knowledge of this subject than has the hon. Gentleman.
The Bill affects not only the people who are here increasing our invisible

earnings, but large American companies which have invested in our country and are continuing to do so on a massive scale. They will be forced to think again if they are not allowed to extend consideration of their affairs for a longer period, as suggested by the amendment.
4.45 p.m.
American industry in this country has habitually invested far more here than have British companies of a similar size. There are 1,000 American companies operating here, of which 270 employ 481,000 United Kingdom subjects, of whom 125,000 work in the development areas. Some international companies can select the area in which they operate. They have no obligation to operate from the United Kingdom. They can equally well operate from Belgium, Holland, France or West Germany. The selection they make is based largely on trade and communications, but it is also based on their ability to attract outstanding executives, perhaps from their own country, to carry out their programmes. That selection is bound to be affected by considerations of taxation.
The proposal for the 50 per cent. deduction puts them in a worse position than do the taxation arrangements available in Belgium and France. If they are here for longer than nine years, and if they have no time to make adjustments to their affairs they will consider carefully whether to make any fresh investment in this country. They have to take account of their net remuneration after tax and of the effect of the Bill on their investment income. If the provisions of the Bill are implemented, their investment income in the United States will be liable to the full United Kingdom tax at the top rate.
In the United Kingdom the top rate of tax on investment income is 98 per cent., starting at £21,000. In the United States the top rate of tax is 75 per cent., and it is not reached until the level of income is £170,000. It is clear that unless the provisions in the Bill are put back for two or three years so that American citizens have more time to adjust their affairs, many of them, and many other foreign nationals, will decide not to operate here because of the effect on their investment income in their own countries.
What is to prevent them from being subject not only to taxation on their investment income but to the wealth tax which the Labour Party has threatened? The amendment would allow them further time to arrange their affairs.
I will refer briefly to the position of the United Kingdom citizen who works abroad for part of the time. Some people work for companies and some are partners in overseas operations. I am thinking particularly of large consulting engineering firms where it is essential, if they are to operate at all, to operate in an overseas partnership. According to the Bill, the year of assessment is 1974–75, but for a partnership, where the preceding year of assessment is taken into account, there is an adverse effect. The effect of the amendment would be to delay the impact of the assessment for two or three years.
I have an interest in this matter, which I hasten to declare, as a member of a Swiss partnership. We shall deal with these matters at a later stage of the Bill when other amendments will be considered. The present amendment deals with a matter of great importance for these large industrial partnerships. Having already made provision for taxation out of profits—if they made any— they now discover that their arrangements will be nullified by the date put forward in the Bill.

Mr. John Cope: I am delighted to support the amendment, and I wish to make one or two comments about the situation of the United Kingdom resident who goes abroad. We shall have an opportunity to refer in more detail to these matters later on in the Committee stage, and I shall not argue the matter in full on this amendment.
I believe that my hon. Friend is correct in seeking in his amendment to have this provision postponed so that its effect can be more fully understood by the Committee. It was certainly clear from the point of order from the Labour benches a few minutes ago that these provisions are not fully understood in the Committee. The amendment refers not only to a United Kingdom resident who works abroad for part of the year but to those with foreign emoluments—those who are

non-domiciled and who have a nonresident employer.
The Bill will make it difficult for a United Kingdom resident who works abroad to compute his income since he will receive no allowance for the additional costs which he will have to pay in living and working abroad. Furthermore, he will receive no allowance for the cost of travelling to and from his overseas post. This will take away a great deal of his gross income, but it is on that gross income that he will have to pay United Kingdom tax.
There are other areas in which the situation overseas is different from the position in this country. I refer, for example, to the question of medical expenses. If a man is working in this country and is paid here, he is covered by the National Health Service, but if he goes on assignment to the United States or somewhere else where medical assurance is more the rule and happens to fall ill, he may incur a great amount of medical expenses which are not deductible from gross income. These matters need to be fully understood and appreciated by the country. We need to see the effects of these provisions before the Committee plunges into this departure in the tax system. It is of great importance that we do nothing to prevent people from this country going abroad for short periods. This is important in terms of our visible and invisible exports.

Mr. John Nott: I have a great interest in this subject since it is a matter which I considered in some depth in the Treasury until about three months ago. I support the idea underlying the amendment. Perhaps I could deal with the general situation of a United Kingdom resident in the context of this amendment.
I wish to make one last appeal to the Chief Secretary to look at this matter again. This is a complicated tax matter, and we appreciate that a very great deal had to be studied by incoming Treasury Ministers in the three weeks before the Budget. Perhaps the Chief Secretary and I are among the few people who have read the underlying papers which led up to the measures contained in the Finance Bill.
I should like to say a few words about the consultation which went into drawing up the views of the Inland Revenue on


this subject. It is necessary to refer to the history of the matter in some detail. The provisions arose out of the Lonrho situation. I am sure that all hon. Members in the Committee will agree that the alleged situation in Lonrho is totally unacceptable to Members of Parliament and indeed to the whole country. I say "the alleged situation" which arose in Lonrho, because it must be said that nobody has the slightest idea whether or not the principal characters in that episode were taxable at the highest marginal rates. From my general knowledge I would say they probably were fully taxable; I may be wrong, because I have no means of knowing. But following Lonrho it was politically necessary to take action against the siphoning of income into tax havens and the growing use of this tax avoidance device which had become an affront to public opinion.
Having made these opening comments, I must confess that with our absurdly high marginal rates of tax, the tax system will be kept alive and breathing through its loopholes. Accountants, lawyers and other professional people will continue to concoct legal means of limiting the amount taken by the Revenue when it attempts to plunge its shovel into a man's stores. The skirmish between the Inland Revenue and professional advisers will continue. Those advisers will tend to be one jump ahead of the Inland Revenue. It will always be the function of Treasury Ministers to back up the Revenue in what is an extremely difficult task. However, the skirmish between the Revenue and professional advisers is a more healthy situation than one which all Governments are in danger of provoking. I refer not to legal avoidance but to deliberate, planned evasion of taxes.
The ending of the remittance basis will tend to bring the Inland Revenue and the Exchange Control into greater contempt, because I believe that it will provoke fraud and more rather than less evasion. The new arising basis— because most of these payments are made overseas—will be difficult to police. A tax law which is difficult to police is not good law. To give the Inland Revenue its due—and I have the greatest respect of for its integrity and intelligence—it

was given a mandate to take action following Lonrho and came up with the proposals embodied in the Bill. The only problem is that the Inland Revenue's recommendation is wrong. I know that when the officials read my speech they will not be surprised to hear me take the view that the Inland Revenue's recommendations, in this case, are not the right ones.
Yesterday I took the opportunity, as I am entitled to do to look at some of the papers from the time when I was a Minister not many months ago. I can say, I think without breaching any confidences, that as late as 20th February, eight days before the General Election, my colleagues and I were all still seeking an answer to the problem and we had not arrived at the conclusion which the Government have now embodied in the Bill. I must strongly emphasise that we had not decided to remove the remittance basis, and we certainly thought it was completely wrong to consider doing so in the case of pensions. I do not have the time to go into why I think that would be a great mistake.
5.0 p.m.
The proposals in the Bill represent the cleanest, simplest and easiest way of ending the avoidance. However, when considering this matter my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) was determined not to do anything which would damage the wider United Kingdom interest and discourage genuine business and professional engagements overseas. He was determined not to do anything that might, in a very intangible way—because these are intangible matters—undermine the delicate position of London as a major financial centre. He was concerned about the pensions problem in the event that the remittance basis was ended. Here we are talking not just of London as a financial centre, but as a cultural and artistic centre, because that enters into the matter as well. I do not want to go into all the reasons because they are well known to the Chief Secretary, but, while we do not wish to have the United Kingdom as a tax haven, it is not necessary for the measures in the Bill to be brought forward in this Bill to get over the avoidance devices that have been used.
I am not all that happy at the process of consultation. It is not the fault of the Inland Revenue that the process of consultation is what it is. It is all wrapped up with the Budget secrecy tradition, which I think everyone agrees is carried too far. Following our mandate after the Lonrho affair, the Inland Revenue considered the matter in some depth with the Tax Reform Committee. On a case like this, the Tax Reform Committee is not really a representative body. It consists of men of the greatest eminence and skill, some of them, because they are so eminent and skilful, being too busy to attend the meetings. But essentially the committee at the moment lacks—and this is nothing against the men who are on it— men of practical entrepreneurial qualities. It is made up too much of senior members of the Bar and so forth. If the committee is to continue with this work it should broaden its base.
Another aspect is that the Department of Trade and Industry, which is the Whitehall spokesman for British industry, did not fight its corner very well on this issue in its discussions with the Revenue. I do not criticise the civil servants, but the processes of consultation in arriving at this kind of measure will have to be improved. I suppose I shall get into trouble for saying this, but I do not believe the DTI officials, in this case, were the intellectual equals of the Inland Revenue, which, after all, is charged with the duty to collect the taxes. The process of consultation has therefore reached its most important point in this debate. I hope that the Chief Secretary will consider the debate as the final and most important and genuine consultation of the whole affair.
I was very keen at one stage to have, instead of the ending of the remittance basis, a time apportionment arrangement under which the Inland Revenue looked into each separate situation and decided that the United Kingdom citizen had spent so much time and effort abroad but where the onus lay upon the individual to show the Inland Revenue just how much time and effort he had spent overseas. I have come to accept that this is probably administratively not very sensible. Another possibility is that suggested by my right hon. Friend where it is clearly possible to tamper with the percentage in Schedule 2. If the Chief Secretary is

unsympathetic to everything else I hope that, as a last resort, he will look at this proposal because it is the simplest way of amending the Bill, even though I do not consider it to be the right way of doing it.
I should like the Chief Secretary to consider two other possibilities, and I hope that he will agree to look at them before Report. All my right hon. and hon. Friends who were looking at this matter were coming round to the view that these were two possible alternatives to the ending of the remittance basis Instead of taxing 90 per cent. of earnings as proposed in Schedule 2—my right hon. Friend's amendment suggests 50 per cent. —will the Chief Secretary consider exempting overseas earnings up to a specified percentage of the United Kingdom individual's total United Kingdom income? For example, take a United Kingdom individual with a total income of £10,000. Can we not perhaps consider treating on the remittance basis up to, say, 50 per cent. of that man's overseas earnings—and I stress I am dealing here with United Kingdom residents. That is one possibility which has not been properly studied but should be.
Of course, the tax avoidance problem is not one for the individual who works in France, Germany, the Netherlands or the United States and spends his time there. If he earns an income in the EEC or in the United States above a certain level, he will pay full French, German, Dutch or United States taxes. There is a belief in some quarters that a man who earns an income on overseas business does not pay tax. That applies only in the case of a tax haven. It is perfectly reasonable for a man working in France or Germany and whose work does not touch the United Kingdom to pay French and German tax. The problem is a tax haven problem. This is not a question of a man who does business in the EEC because he will be taxed on an EEC basis, although he may pay lower marginal rates than United Kingdom rates.
Can we not look at the concept of a reasonable rate so that the man working overseas pays either the tax rate prevailing in the country where he works or, if he is earning that money by a device in a tax haven—whether it be the Channel Islands, the Cayman Islands or a place


where there is no tax for non-residents— taxes at the United Kingdom basic rate? There would then be no way in which a man working overseas paid no tax. He would pay at a minimum a reasonable rate which might be, say, the United Kingdom basic rate. That man would then either remit the money on a remittance basis and pay United Kingdom tax, or he would pay German, French or American taxes and would be taxable on that basis, or he would pay at a "reasonable rate" at the minimum. These are two other possibilities as well as the opportunity of reducing the percentage in Schedule 2. Personally, I think that both of them are preferable to an ending of the remittance basis. The ending of the remittance basis, for pensioners especially, will be extremely harsh and unjust. A man might have devoted the whole of his life to working in the colonial service overseas.
In fact, there is other legislation for upgrading public service pensions which the Labour Party supported in this House. There is other legislation which impliedly accepts the concept that if a man spends the whole of his life overseas he is entitled to benefit from the remittance basis. I do not believe that we are right to end the remittance basis generally, and certainly not in the case of pensions. I could not be more aware of the difficulties involved in the alternatives but I ask the Minister to consider those that I have mentioned.
I have made a comparatively non-controversial speech but I feel most strongly on this issue. I think that on the present basis the ending of the remittance basis will be damaging to the wider interests of the United Kingdom. I do not expect the Minister to confirm this, but I believe that we are all looking to an alternative which ends avoidance, which deals with the genuine political problem and which at the same time does not damage the United Kingdom interest.

Dr. Reginald Bennett: I am sure that the Committee will be most grateful to my hon. Friend the Member for St. Ives (Mr. Nott) for his profound and well-reasoned consideration of the subject under discussion. I do not pretend to be able to follow to any extent the complexity of his well-informed thinking.
My hon. Friend made a reference to the financial value of the City of London as a trading centre. I have received representations from members of certain Italian-owned banks. I know that there have been consultations in London involving the whole consortium of the banks that are Italian owned. They have been boiling with indignation and they have sent me a document in which they state quite roundly that if this legislation goes through as at present intended the senior officials of the Italian-owned banks in London will cease to function here. The banks will take their own decision whether to cease their operations in London completely or to downgrade them to a petty basis.
I do not know whether the Chief Secretary has heard about these matters but I believe that the Committee should be fully cognizant of them. I take this opportunity of bringing them to the attention of the Committee.

5.15 p.m.

Mr. Joel Barnett: This has been an interesting debate. I am much obliged to the hon. Member for St. Ives (Mr. Nott) for the excellent way in which he told us of his experience of this problem. I am grateful for his remarks.
Before coming to the detail of the amendment I shall consider the general question of Clause 14 and some of the points that have been raised. The hon. Member for St. Ives talked about whether it was right to deal with the problems of avoidance. He said that when his right hon. Friend the Member for Altrincham and Sale (Mr. Barber), the former Chancellor of the Exchequer, decided to look into avoidance it was accepted that there was a serious problem to consider regarding the remittance basis. He said that he feared that to change it would create more evasion. It is possible that he may be right. I have no way of knowing whether he is right or wrong.
It is obvious that the remittance basis is a complicated matter. There are already degrees of evasion as well as avoidance, as I am sure the hon. Gentleman will be aware. We shall deal with it, as he knows, by virtually doing away completely with the remittance basis. The hon. Gentleman has put forward one or two suggestions which I shall consider


carefully. He considered the time apportionment basis and decided that that was not a proposition for obvious reasons.
The hon. Gentleman asked whether I would consider reducing the 90 per cent. basis of charge on overseas earnings. A number of hon. Members have referred to that, to the taxation of expenses and various matters regarding the taxation of academics and others who go abroad for a short time. If they go abroad beyond any 365 days they are not liable to United Kingdom tax in any way. That arises under Schedule 2. I am more than willing to consider these matters sympathetically when we come to consider Schedule 2.

Mr. Peter Rees: If
the Minister cannot enlighten the Committee this evening I ask him to apply himself, before we come to Schedule 2, to a point of particular concern relating to those who enjoy foreign emoluments. Let us assume that an American who is employed by an American bank serves in the United Kingdom. He may participate in a share option scheme and in pension arrangements in the United States which may not count as emoluments under United States fiscal law. It is clear from our earlier debates that any participation in a share option scheme is likely to give rise here to a charge on tax. It is unlikely that an American pension scheme has been vetted and approved by the Inland Revenue. Will the American banker that I have used in my example be assessable in respect of such matters in the United Kingdom? If the Minister cannot give us an answer now I hope that he will do something before we come to Schedule 2, otherwise, we shall have to debate the matter carefully at that stage.

Mr. Barnett: I have given a great deal of thought to the situation that the hon. and learned Gentleman has described. However, it does not arise under this clause. We are talking about the non-United Kingdom man who comes here for less than 9 or 10 years. He is taxed on only 50 per cent. of his earnings within the United Kingdom. I think that may have caused some misunderstanding for the last hour or so. I am sure that the hon. and learned Gentleman understands that under Clause 14 non-United Kingdom citizens who come here and work for less than

9 or 10 years will pay tax on only 50 per cent. of their earnings in this country. Therefore, the American in the hon. and learned Gentleman's example would not be taxed on any share option scheme or pension scheme in which he participates in the United States. That arises on Clause 18 on the 9 or 10 year situation, which we shall come to later. It does not apply to Clause 14.

Mr. Rees: I do not think that the Minister has understood my proposition. Let us assume that an American bank— I only take as an example an American because we know that they have share option schemes to a greater degree than in most other countries—sends one of its employees to this country for three or four years with a salary of $X or£X. Let us suppose that the American bank employee continues to participate in a share option scheme and in a pension scheme as a reward for his services as acting as the bank's representative in the City of London. Is the Minister saying that in that situation the Inland Revenue will calculate the benefits from participation in the share option and pension schemes and assess his tax liability on 50 per cent. of that? If so, that is a staggering and terrifying proposition.

Mr. Barnett: That is precisely what I did not say. I am sorry if I did not make myself clear but this is a complex issue. The American in the hon. and learned Gentleman's example would not be taxed on any benefit from his share option scheme if he is here for less than 9 or 10 years. He would only be taxed here on 50 per cent. of his earnings. I hope that that is clear. If it is not, I shall be happy to give way again and deal with this and any other matter.

Mr. Higgins: Does the Minister mean earnings that are paid here or earnings which result from employment here, wherever they are paid and under whatever basis they are paid?

Mr. Barnett: I was referring to earnings paid in this country. That is my understanding of the matter. If I hear further from on high, I shall amend that statement, but my understanding is that the American in the example would be taxed at 50 per cent. of his earnings here. If I am wrong about the share options, I can assure hon. Members that that is not the intention under the less than 9–10


years situation. We shall put down amendments if necessary, but I do not think that it will be necessary.

Mr. Tim Renton: That was not my understanding, but the Chief Secretary's expertise on the matter is far greater than mine. Does tax on 50 per cent. earnings in the United Kingdom apply if the non-resident here temporarily is employed by a British employer as well as if he has a foreign employer?

Mr. Barnett: If his earnings are here, whoever his employer is, the employee will be taxed as to 50 per cent. of his earnings here.

Mr. Higgins: I think that both my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) and I are under the impression that what the Chief Secretary said is not precisely correct. Will he give an undertaking that if that is so he will correct it in the debate on the Question "That the Clause stand part of the Bill"?

Mr. Barnett: I shall look into that. I understand that a person is not taxed on share option schemes abroad but is taxed on 50 per cent. of his earnings here.
I was dealing with the points raised by the hon. Member for St. Ives and his suggested alternative methods of dealing with the matter as opposed to the remittance basis. I promise him that I shall examine them. But the questions of 90 per cent. of earnings, the taxation of expenses or otherwise, and so on arise on Schedule 2, and I shall be considering those matters sympathetically when we come to the schedule in Committee upstairs. I promise also to look into the concept of a reasonable rate, but my first reaction—admittedly very quick—is that this might well make the matter even more complex.
The debate was started by the hon. Member for Scarborough (Mr. Shaw). His amendment is very simple—to put off for two years the commencement of the clause. Here I should like to refer to the background to the need for the clause and the other clauses in question. As the hon. Member for St. Ives said, it stemmed from what was known as the Lonrho affair. At that time there was considerable agreement on both sides of

the House that that kind of abuse of a tax-avoiding scheme was an affront to hon. Members. One or two may have disagreed, but that was the general view, and it has led to the clauses. However, we are here dealing only with Clause 14.

Mr. Hugh Fraser: This is a typical instance of what I call over-reaction of the most hysterical sort by both Front Benches.

Mr. Barnett: I am not sure who is being hysterical or over-reacting, but I shall come to the point the right hon. Gentleman and other hon. Members raised.
The clause deals with United Kingdom citizens working abroad on a short-term basis—that is, less than 365 days—and non-United Kingdom citizens working here for less than 9 or 10 years. This is where there has been a considerable misunderstanding during the debate.

Mr. Michael Shaw: It is not just those working here for less than 9 or 10 years. In fact, it operates for the first two years, exclusive of the terms of Clause 18. It affects all non-United Kingdom-domiciled citizens straight away.

Mr. Barnett: But Clause 18 does not come into effect anyway until two years have passed. Therefore, in the amendment we are dealing with the two classes to which I have referred.
We have heard speeches about United States and Italian citizens and others leaving this country because of the more stringent arrangements after 9 or 10 years under Clause 18. One hon. Member asked whether we had had representations. We have had many representations, but almost all of them were on Clause 18. We have had very few representations on Clause 14 and the 50 per cent. basis of taxation. The United States Chamber of Commerce was not concerned; it accepted that this was reasonable.
I shall try to explain why it is reasonable. The hon. Member for St. Ives pointed out that this country is something of a tax haven for the type of person we are considering. Until I started to look at the matter, I had never realised that Britain was a tax haven, but it was, for certain non-United Kingdom citizens.
The argument is really about whether the 50 per cent. basis for less than 9 or


10 years is so stringent as to force those people abroad instead of working here. Where will they go? On 12th June, in answer to a Written Question, I gave comparisons of net incomes after tax in a number of countries, most of them in Europe, but including Japan. I compared taxation for foreigners there with the taxation of foreign citizens working here for less than 9–10 years under our proposals. In every case they were better off in the United Kingdom than in any of those other countries, even with Clause 14. Hon. Members can see that answer at c. 562 of HANSARD for 12th June.

Mr. Hugh Fraser: Will the hon. Gentleman look at the French figures? It is easy for someone working in France to take his holiday in the last month of the year and, therefore, not pay this rate of tax. That is a simple and accepted way of getting round it for American executives in France. If the hon. Gentleman went into these matters more closely, and if some of the brilliant men at the Treasury spent a year or two looking at practical matters, we should be greatly advantaged.

Mr. Barnett: I am obliged to the right hon. Gentleman. If he is saying that there are methods of avoiding French taxation, that is true, but I assure him that there are also methods of avoiding British taxation. I declare an interest. I have been dealing with that matter for many years.
I was giving the facts of the tax systems of the various countries. [Interruption.] I can only refer to the tax systems, and under those systems the position is as I have stated it.
A great deal of the substance of the debate has been about Clause 18 and the problems that will arise for those who are here for longer than 9 or 10 years. I shall give serious consideration to those matters when we debate upstairs the amendments to that clause. They do not apply to Clause 14.
Equally, many of the points raised— for example, whether 90 per cent. of the income of a United Kingdom citizen who goes abroad to work for less than 12 months should be taxed—come under Schedule 2. I am prepared to listen sympathetically to those arguments when

we come to the schedule, but they do not apply now.
The purpose of the clause was to stop a major tax avoidance industry that was going on because of the remittance basis. There is no dispute about that. The question was how best to deal with it. What we have done, certainly by removing the remittance basis as proposed under the clause, is to cut out substantially part of the abuse that was occurring. It will certainly cut out some of the things— not necessarily those which occurred in the Lonrho case; none of us knows whether or not that has yet been caught for tax. But certainly it will cut out many abuses by those who have been using the remittance basis and have been able to avoid tax because of that system. Where they are using that system properly they have, quite genuinely and legally, been able to avoid their tax liability.
5.30 p.m.
We have all accepted that this was an abuse and an affront and had to stop. Now we have stopped it, and it surely must be wrong for the Committee, recognising that it is an affront and an abuse and that the clause stops it, to say with the amendment that it should be left for another two years. I see no reason why we should leave it for another two years. It is an abuse which should be stopped now.

Mr. Peter Rees: The Chief Secretary does not appear to have grasped the force of the amendment. Lonrho had nothing to do with foreign emoluments. One presumes that it was entirely to do with United Kingdom residents. On this amendment we have been debating the case of foreign domiciled employees of foreign companies who are here, and I hope, with great respect, that the Chief Secretary will recognise that.

Mr. Barnett: I do not want to argue with the hon. and learned Gentleman as to who is right. I leave him to argue with his hon. Friend the Member for St. Ives. I am not resting on the Lonrho case. I thought that no one disagreed that the remittance basis allowed considerable abuse. What the clause does is to stop it. I do not believe that we should wait two years to do so. Therefore, I ask my right hon. and hon. Friends to oppose the amendment.

[Sir M. GALPERN in the Chair]

Mr. Emlyn Hooson: I am enabled to make a brief contribution to the debate because of the very liberal and broad way in which, on what is a narrow amendment, the debate has been interpreted. As the Chief Secretary has said, a great deal of argument has ranged on what is really contained in Clause 18, but as that clause will be considered in Standing Committee and Clause 14 is but part of the same broad process of dealing with not only British people resident abroad who are sending remittances here but also people from abroad who are working here, it is right that the debate should have been interpreted in this way.
The great danger that the Government are in, in this case, is that in order to deal with what is emotionally and politically a very live issue, namely, the knowledge that there has been very considerable tax avoidance in this sphere—to put it at its lowest—the Government want to deal with it in such a way as to harm the long-term interests of this country. That is the fear which arises. Any detached person would agree. We are in danger, as J. M. Keynes once suggested, of getting the answer precisely wrong rather than broadly right. There is a clash of interest here between the long-term broad interests of the country and the more narrow sphere of dealing with immediate problems of tax avoidance or evasion.
The Government would be quite wrong not to appreciate the strength of feeling on this matter by those who are extremely well disposed towards this country. The truth is that Britain is becoming an increasingly unattractive place for a multinational or international company to have its headquarters. No one would dispute that. It may be that the overall wisdom of the House of Commons is that that is a good thing. But if that is so, we must at least face the implications. Surely this country has always had what can be described as a rather open economy. We are in the perceptible process, under the previous Government and the present Government, of making it more and more a closed economy. The argument against going into the Common Market, advanced from the Government side of the House greatly, was that the Common Market was too closed an economy, too nationalistic. We are in great danger, while

arguing against the Common Market on that basis, of becoming more nationalistic ourselves.
Let me give an example. A friend of mine, a fellow countryman, happens to be the chairman of an international company. Its export earnings last year for this country were £71 million. In addition, it received into this country £34 million in dividends from other countries—though it paid some of this sum out to foreign shareholders. However, the net benefit to our balance of payments was enormous. I know that people in that company are greatly concerned whether they should continue in this country. A corollary to this matter is the unattractiveness for British citizens who are employees of international companies, who serve a time in France or the United States and then return to this country and find themselves in tax difficulties. The Chief Secretary has not given an adequate answer to the question that was posed about share option schemes in the United States and whether benefits from those schemes are taxable in this country. It would be of interest to know his final reply on that matter.
I am absolutely sure, however, that this whole question needs more careful consideration. There has not been enough consultation on the matter with people who are tremendously interested and are staying in this country and making the system work, and who agree that these abuses should be put right. They are abuses. Hon. Members on the Opposition side of the Committee have not tried to hide that fact.
The Chief Secretary said that this country was a tax haven for many foreigners working here. That is true, and that is essential if we are to remain a centre of international trade and to have benefits from the invisibles. Let us take shipping as an example. I know some people who have interests in shipping. I have no interests in the City or in any of these companies. I have simply listened to the contributions made by these people. I know, for example, that many employees of shipping lines—for instance, the Greek lines, run from Piraeus where their ships are when their trading is done in this country—live here for six months of the year and in Greece for six months.
We are reaching a point at which our taxation system is such as to just change


the balance in favour of those who are under pressure to leave this country. We have competitors. In the last year or two France has been adapting her tax system to try to attract international companies to set up international headquarters there. We are very lucky in many ways in that many international companies which have headquarters here have very distinct British ties. Many of their representatives frankly admit that they prefer living in Britain to living in any other country.
I know a young man who is an extremely able businessman and a British citizen. He is the European director of a very large multinational concern. He will not live in this country at present, though he would very much like to live here. When the Chief Secretary says that from calculations he has had made he finds that the net income of these people would be larger in Britain than it would be in any other country, he should realise that in practice that is not true.
Therefore, although I entirely agree with the Government, as does every sensible detached person who has made representations to me, that there are abuses which must be dealt with, it would be foolish for this country to jeopardise now much of the basis of its international position, as New York did with shipping just after the end of the war. Many great shipping interests, at the end of the war, went to New York. They left this country. The Chief Secretary would do well to inquire why they left New York in the 1947–52 period and the international dealings returned to this country.
That is why this whole question needs to be examined again. Far greater consultation is needed. The Government have shown a willingness to consider many of the representations that have been made to them. Nevertheless, the process of dealing with this great problem is being rushed too much.

Mr. Robert Carr: I wish to make a number of comments on the amendment because, although I know that several of my hon. Friends wish to express views on the subject, we have a number of debates on the clause still ahead of us and I sense the desire on both sides of the Committee to draw this

debate to an end, given those further opportunities.
I notice that the Chief Secretary declared an interest in that in the past he dealt with these matters in a professional capacity. May I take this opportunity to wish that he may quickly return to that lucrative service industry of which he was such a distinguished member? If I have to declare an interest, it is simply an interest as a poor taxpayer who finds it as difficult as other taxpayers to understand the complexities of a provision of this kind.
The Chief Secretary took the view that as this was the first amendment on this and the related clauses and the schedule it was right to make a number of general remarks, and, Sir Myer, you and your predecessors in the Chair have allowed a number of general remarks to be made which have stretched the confines of the amendment if not to bursting point at least somewhere near it. Therefore, I take this opportunity briefly to put on record some of the Opposition's general views on the subject.
I want first to make it clear, as my hon. Friends have done and as the hon. and learned Member for Montgomery (Mr. Hooson) has done on behalf of the Liberal Party, that we all recognise that there are abuses. None of us pretends that there are not, and we all wish to see them stopped. But in saying that we wish to stop abuse we also say quite clearly from the Opposition benches that we must avoid the danger of doing great damage to the national interest—damage to what the hon. and learned Member for Montgomery has just described as the long-term broad interests of this country.
There is a danger that in stopping abuse—which we all want to do—we may damage the national interest. We genuinely believe, and obviously very large numbers of people outside this House believe, that the proposals in Clause 14 and the associated clauses and the schedule stop the abuse at too high a price for the national interest as a whole. In trying to get at the minority who abuse, we must take care that we do not damage the overall national interest or the interests of large numbers of business men and women and artists and professional people of all sorts who come here


and give useful service to the community in an economic, social and a cultural sense.
We believe that this country gains great advantage from our citizens going out and working abroad, from citizens of other countries coming to live and work here on a long-term basis, and from overseas businesses and organisations setting up here in Britain This is of great value to the country. It is a matter which struck me forcibly when the case of Professor Johnson was mentioned earlier. We must realise that the people and organisations that we are discussing have a choice whether to stay here or to go away. Similarly, United Kingdom residents may decide either not to bother to work abroad, as they do at the moment, or to leave the United Kingdom for good. In the same way, citizens from foreign countries living and working here can go elsewhere.
I heard one or two hon. Members ask where there was to go which was as favourable as Britain, even under these proposals. My right hon. Friend the Member for Stafford and Stone (Mr. Fraser) pointed to France. It is well known that Belgium is also fairly favourable. What is more, we have to recognise that at the moment France is actively trying to make herself more attractive to both organisations and individuals to work and to base their activities in that country. We must not say too easily that there is nowhere else that these people can go. There are plenty of other places, and, overall, it is in our interests that they should stay here and be joined by others in the future and also that our own people should find it reasonably advantageous to go and work abroad for considerable periods.
5.45 p.m.
There is also the matter of fairness to individuals, and this arises most clearly in the case of overseas service pensions. Some 10 years ago I was the Minister in charge of technical aid to the developing countries. For that reason, I have a fairly vivid recollection of this. There is a great deal of interest in this House on behalf of such people, and there is no doubt in my mind that these proposals are harsh and unfair on them. Anyway, that is the view of the Opposition, having

listened to all the many representations that we have had on the subject.
We feel that this clause and its related clauses and the schedule do not avoid the danger to which I have referred. We believe that these proposals are too rushed. I agree that the Chancellor of the Exchequer and his Treasury colleagues have had a very short time in which to consider these proposals. But, in view of the fact that they have themselves said that they wish to have a second Finance Bill this year—not even waiting the normal full year—would it not be better to withdraw these proposals temporarily, to publish a Green Paper, to listen to and to think about what is said as a result of that Green Paper, and then to bring forward in their second Finance Bill proposals to deal with what we all accept to be abuses, bearing in mind that we all want to deal with them but that, in dealing with them, we also want to avoid some of the potential damage which we and very many responsible people outside this House believe will be done by the proposals as they stand?
If the Government will not do that, we shall do our best to improve these proposals by amending this and the other clauses and the relevant schedule. But I fear that, however successful we are and however pliant the Chief Secretary becomes in listening to our arguments, it will not be possible to avoid damage.
I make it clear on behalf of the Opposition that in due course, which I believe will probably be in the autumn, we shall reconsider this matter ad initial, and that if the Government proceed with proposals on these lines they can be assured that a future Conservative Government will tackle the abuse in a different manner.
The amendment we are now debating touches only one part of the problem, but at least it ameliorates the position significantly. Therefore, I welcome the fact that my hon. Friend the Member for Scarborough (Mr. Shaw) has introduced it. But, although we are glad to hear from the Chief Secretary that he will consider various matters later as we come to them, I believe that this amendment is sufficiently important and sufficiently constructive to advise my right hon. and hon. Friends to support it in the Division Lobby.

Question put, That the amendment be

The Committee divided: Ayes 220, made:— Noes 253.

Division No. 41.]
AYES
[5.49 p.m.


Adley, Robert
Grieve, Percy
Mudd, David


Alison, Michael (Barks ton Ash)
Grist, Ian
Neave, Airey


Allason, James (Hemel Hempstead)
Grylls, Michael
Neubert, Michael


Ancrant, M.
Hall, Sir John
Newton, Tony (Braintree)


Archer, Jeffrey (Louth)
Hall-Davis, A. G. F.
Nott, John


Atkins, Rt.Hn.Humphrey(Spelthorne)
Hamilton, Michael (Salisbury)
Onslow, Cranley


Awdry, Daniel
Hampson, Dr. Keith
Oppenheim, Mrs. Sally


Banks, Robert
Hannam, John
Osborn, John


Beith, A. J.
Harrison, Col. Sir Harwood (Eye)
Page, Rt. Hn. Graham (Crosby)


Bennett, Dr. Reginald (Fare ham)
Harvie Anderson, Rt. Hn. Miss
Pardon, John


Benyon, W.
Hastings, Stephen
Parkinson, Cecil (Hertfordshire, S.)


Berry, Hon. Anthony
Havers, Sir Michael
Percival, Ian


Biffen, John
Hawkins, Paul
Peyton, Rt. Hn. John


Boardman, Tom (Leicester, S.)
Hayhoe, Barney
Pink, R. Bonner


Body, Richard
Heath, Rt. Hn. Edward
Price, David (Eastleigh)


Boscawen, Hon. Robert
Heseltine, Michael
Quennell, Miss J. M.


Bowden, Andrew (Brighton,Kemptown)
Higgins, Terence
Raison, Timothy


Braine, Sir Bernard
Hooson, Emlyn
Rathbone, Tim


Bray, Ronald
Hordern, Peter
Redmond, Robert


Brittan, Leon
Howe, Rt. Hn. Sir Geoffrey (Surrey, E.)
Rees, Peter (Dover &amp; Deal)


Brown, Sir Edward (Bath)
Howell, David (Guildford)
Rees-Davies, W. R.


Bruce-Gardyne, J.
Howell, Ralph (Norfolk, North)
Renton. Rt. Hn. Sir David (H't'gd'ns're)


Bryan, Sir Paul
Howells, Geraint (Cardigan)
Renton, R. T. (Mid-Sussex)


Budgen, Nick
Hunt, John
Ridley, Hn. Nicholas


Bulmer, Esmond
Hutchison, Michael Clark
Rifkind, Malcolm


Burden, F. A.
Irvine, Bryant Godman (Rye)
Roberts, Michael (Cardiff, N.-W.)


Butler, Adam (Bosworth)
James, David
Roberts, Wyn (Conway)


Carlisle, Mark
Jenkin, Rt. Hn. P. (R'dgeW'std&amp;W'fd)
Rodgers, Sir John (Sevenoaks)


Carr, Rt. Hn. Robert
Jessel, Toby
Rost, Peter (Derbyshire, S.-E.)


Chataway, Rt. Hn. Christopher
Johnson Smith, G. (E. Grinstead)
Sainsbury, Tim


Churchill, W. S.
Jones, Arthur (Daventry)
Shaw, Giles (Pudsey)


Clark, A. K. M. (Plymouth, Sutton)
Jopling, Michael
Shaw, Michael (Scarborough)


Clark, William (Croydon, S.)
Joseph, Rt. Hn. Sir Keith
Shelton, William (L'mb'th.Streath'm)


Clegg, Walter
Kellett-Bowman. Mrs. Elaine
Shersby, Michael


Cocksfoot, John
Kershaw, Anthony
Silvester, Fred


Cope, John
Kimball, Marcus
Sims, Roger


Cordle, John
King, Evelyn (Dorset, S.)
Smith, Dudley (W'wick&amp;L'm'ngton)


Cormack, Patrick
King, Tom (Bridgewater)
Spicer, Jim (Dorset, W.)


Corrie, John
Knight, Mrs. Jill
Spicer, Michael (Worcestershire, S.)


Co stain, A. P.
Lamont, Norman
Sproat, lain


Critcl ley Julian
Lane, David
Stanbrook, Ivor


Crouch, David
Langford-Holt, Sir John
Steel, David


Davies, Bryan (Enfield, N.)
Latham, Michael (Melton)
Steen, Anthony (L'pool, Waver tree)


d'Avigdor-Goldsmid, Maj.-Gen. James
Lawrence, Ivan
Stewart, Ian (Hitchin)


Dixon, Piers
Lawson, Nigel (Blaby)
Stokes, John


Dodsworth, Geoffrey
Le Marchant, Spencer
Stradling Thomas, J.


Dray son, Burnaby
Lester, Jim (Beeston)
Tapsell, Peter


Durant, Tony
Lewis, Kenneth (Rtland &amp; Stmford)
Taylor, Edward M. (Gl'gow, C'cart)


Dykes, Hugh
Lloyd, Ian (Havant &amp; Waterloo)
Taylor, Robert (Croydon, N.W.)


Edwards, Nicholas (Pembroke)
Loveridge, John
Tebbit, Norman


Emery, Peter
Luce, Richard
Thatcher, Rt. Hn. Margaret


Eyre, Reginald
McAdden, Sir Stephen
Thomas, Rt. Hn. P. (B'net,H'dn S.)


Fairgrieve, Russell
MacArthur, Ian
Townsend, C. D.


Farr, John
McCrindle, R. A.
Trotter, Neville


Fell, Anthony
Macfarlane, Nell
Tugendhat, Christopher


Fanner, Mrs. Peggy
MacGregor, John
Tyler, Paul


Finsberg, Geoffrey
McLaren, Martin
van Straubenzee, W. R.


Fisher, Sir Nigel
Macmillan, Rt. Hn. M. (Farnham)
Viggers, Peter


Fletcher, Alexander (Edinburgh, N.)
McNair-Wilson, Michael (Newbury)
Waddington, David


Fletcher-Cooke, Charles
Madel, David
Wainwright, Richard (Colne Valley)


Fookes, Miss Janet
Marshall, Michael (Arundel)
Walder, David (Clitheroe)


Fraser. Rt. Hn. Hugh (St'fford&amp;Stone)
Mother, Carol
Walker, Rt. Hn. Peter (Worcester)


Freud, Clement
Maude, Angus
Walker-Smith, Rt. Hn. Sir Derek


Fry, Peter
Mawby, Ray
Warren, Kenneth


Gardiner, George (Reigate&amp;Banstead)
Maxwell-Hyslop, R. J.
Weather ill, Bernard


Gardner, Edward (S. Fylde)
Meyer, Sir Anthony
Wells, John


Glyn, Dr. Alan
Miller, Hal (B'grove &amp; R'ditch)
Winstanley, Dr. Michael


Godber, Rt. Hn. Joseph
Mitchell, David (Basingstoke)
Winterton, Nicholas


Good hart, Philip
Moate, Roger
Worsley, Sir Marcus


Goodhew, Victor
Monro, Hector
Young, Sir George (Ealing, Acton)


Goodlad, A.
Moore, J. E. M. (Croydon, C.)



Gorst, John
Morgan, Geraint
TELLERS FOR THE AYES:


Gow, Ian (Eastbourne)
Morgan-Giles, Rear-Adam.
Mr. Marcus Fox and


Gower, Sir Raymond (Barry)
Morris, Michael (Northampton, S.)
Dr. Gerard Vaughan.


Gray, Hamish
Morrison, Peter (City of Chester)







NOES


Abse, Leo
Freeson, Reginald
Morris, Rt. Hn. John (Aberavon)


Allaun, Frank
Garrett, John (Norwich, S.)
Moyle, Roland


Ashton, Joe
Garrett, W. E. (Wallsend)
Mulley, Rt. Hn. Frederick


Atkins, Ronald (Preston, N.)
George, Bruce
Murray, Ronald King


Atkinson, Norman
Gilbert, Dr. John
Newens, Stanley (Harlow)


Barnett, Guy (Greenwich)
Ginsburg, David
Ogden, Eric


Barnett, Joel (Heywood &amp; Royston)
Gourlay, Harry
O'Halloran, Michael


Bates, Alt
Grant, George (Morpeth)
O'Malley, Brian


Bennett, Andrew F. (Stockport, N.)
Grant, John (Islington, C.)
Orbach, Maurice


Bishop, S. S.
Griffiths, Eddie (Sheffield, Brightside)
Orme, Rt. Hn. Stanley


Blenkinsop, Arthur
Hamilton, James (Both well)
Ovenden, John


Boardman, H. (Leigh)
Hamilton, William (Fife, C.)
Owen, Dr. David


Booth, Albert
Hamlin, William
Padley, Walter


Boothroyd, Miss Betty
Hardy, Peter
Palmer, Arthur


Bottomed, Rt. Hn. Arthur
Harper, Joseph
Park, George (Coventry, N.E.)


Boyden, James (Bishop Auckland)
Harrison, Walter (Wakefield)
Parker, John (Dagenham)


Bradley, Tom
Hatton, Frank
Parry, Robert


Broughton, Sir Alfred
Henderson, Douglas (Ab'rd'nsh're,E)
Peart, Rt. Hn. Fred


Brown, Hugh D. (Glasgow, Provan)
Hooley, Frank
Pen dry, Tom


Buchan, Norman
Horam, John
Phipps, Dr. Colin


Buchanan, Richard (G'gow, Springbrn)
Howell, Denis (B'ham, Small Heath)
Prescott, John


Butler, Mrs. Joyce (H'gey, WoodGreen)
Huckfield, Leslie
Price, William (Rugby)


Callaghan, Jim (M'dd'ton &amp; Pr'wlch)
Hughes, Rt. Hn. Cledwyn (Anglesey)
Radice, Giles


Campbell, Ian
Hughes, Mark (Durham)
Rees, Rt. Hn. Merlyn (Leeds, S.)


Cant, R B.
Hughes, Robert (Aberdeen, North)
Reid, George


Carter, Ray
Hughes, Roy (Newport)
Richardson, Miss Jo


Carter-Jones, Lewis
Irvine, Rt. Hn. Sir A. (L'p'l.EdgeHill)
Roberts, Albert (Normanton)


Castle, Rt. Hn. Barbara
Irving, Rt. Hn. Sydney (Dartford)
Roberts, Gwilym (Cannock)


Clemitson, Ivor
Jackson. Colin
Robertson, John (Paisley)


Cocks, Michael
Janner, Greville
Roderick. Caerwyn E.


Cohen, Stanley
Jay, Rt. Hn. Douglas
Rodgers, George (Chorley)


Coleman, Donald
Jeger, Mrs. Lena
Rodgers, William (Teesside, St'ckton)


Colquhoun, Mrs. M. N.
Jenkins, Hugh (W'worth, Putney)
Rooker, J. W.


Colcannon, J. D.
John, Brynmor
Roper, John


Conlan, Bernard
Johnson, James (K'ston upon Hull,W)
Rose, Paul B.


Cook, Robert F. (Edinburgh, C.)
Johnson, Walter (Derby, S.)
Ross, Rt. Hn. William (Kilmarnock)


Cox, Thomas
Jones, Barry (Flint, E.)
Rowlands, Edward


Craigen J. M. (G'gow, Mary hill)
Jones, Dan (Burley)
Sandelson, Neville


Cronin, John
Jones, Gaylord (Carmarthen)
Sedgemore, Bryan


Crosland, Rt. Hn. Anthony
Jones, Alec (Rhondda)
Selby, Harry


Criers, G. R.
Kaufman, Gerald
Sheidon, Robert (Ashton-under-Lyne)


Cunningham, (lsl'ngt'n,S&amp;F'sb'ry)
Kelley, Richard
Shore, Rt. Hn. Peter (S'pney&amp;P'plar)


Cunningham, Dr. JohnA. (Whiten Vn)
Kerr, Russell
Short, Rt. Hn. E. (N'ctle-u-Tyne)


Dalyell, Tam
Kinnock, Nell
Silkin, Rt. Hn. John (L'sham.D'ford)


Davies, Bryan (Enfield, N.)
Lambie, David
Sillars, James


Davies, Denzil (Llanelli)
Lamborn, Harry
Silverman, Julius


Davies, Ifor (Gower)
Lamont, James
Skinner, Dennis


Deakins, Eric
Latham, Arthur(CityofW'minsterP'ton)
Small, William


Dean, Joseph (Leeds, W.)
Lawson. George (Motherwell&amp;Wishaw)
Smith, John (Lanark shire, N.)


de Freitas, Rt. Hn. Sir Geoffrey
Lead bitter, Ted
Snape, Peter


Delargy, Hugh
Lestor, Miss Joan (Eton &amp; Slough)
Spearing, Nigel


Dell, Rt. Hn. Edmund
Lever, Rt. Hn. Harold
Spriggs, Leslie


Dempsey, James
Lewis, Arthur (New ham, N.)
Stallard, A. W.


Doig, Peter
Lewis, Ron (Carlisle)
Stewart, Donald (Western Isles)


Dormant, J. D.
Lipton, Marcus
Stewart, Rt. Hn. M. (H'sth, Fulh'm)


Douglas-Mann, Bruce
Loughlin, Charles
Stoddart, David (Swindon)


Duffy, A. E. P.
Mabon, Dr. J. Dickson
Stonehouse, Rt. Hn. John


Dunn, James A.
McCartney, Hugh
Stott, Roger


Dennett, Jack
McCormack, lain
Strang, Gavin


Eadie, Alex
McElhone, Frank
Strauss, Rt. Hn. G. R.


Edelman, Maurice
MacFarquhar. Roderick
Summerskill, Hn. Dr. Shirley


Edge, Geoff
McGuire, Michael
Swain, Thomas


Edwards, Robert (W'hampton, S.E.)
Mackenzie, Gregor
Thomas, Jeffrey (Abertillery)


Ellis, John (Brigg &amp; Scunthorpe)
Maclennan. Robert
Tierney, Sydney


Ellis, Tom (Wareham)
McMillan, Tom (Glasgow, C.)
Tin, James


English, Michael
Madden, M. 0. F.
Tomlinson, John


Ennals, David
Magee. Bryan
Tomney, Frank


Evans, Fred (Caerphilly)
Mahon, Simon
Tuck, Raphael


Evans, loan (Aberdare)
Mallalleu, J. P. W.
Urwin, T. W.


Evans, John (Newton)
Marks, Kenneth
Varley, Rt. Hn. Eric G.


Ewing, Harry (St'ling,F'kirk&amp;G'm'th)
Marquand, David
Wainwright, Edwin (Dearne Valley)


Ferny Hough, Rt. Hn E.
Marshall, Dr. Edmund (Goole)
Walden, Brian (B'm'ham, Lady wood)


Fitch, Alan (Wigan)
Mayhew,Christopher (G'wh,W'wch,E)
Walker, Terry (Kingwood)


Flennery, Martin
Meacher, Michael
Watkins, David


Fletcher, Raymond (Ilkeston)
Mulish. Rt. Hn. Robert
Weitzman, David


Fletcher, Ted (Darlington)
Mendelson, John
Well beloved, James


Foot, Rt. Hn. Michael
Mikardo, Ian
White, James


Ford, Ben
Millan, Bruce
Whitehead, Phillip


Forrester, John
Mitchell, R. C. (S'hampton, itchen)
Whitlock, William


Fowler, Gerry (The Wrecking)
Molloy, William
Willey, Rt. Hn. Frederick


Fraser, John (Lambent, Norwood)
Morris, Charles R. (Openshaw)
Williams, Alan Lee (Hvrng, Hchurch)







Williams, Rt. Hn. Shirley(H'f'd&amp;St'ge)
Woodall, Alec



Williams, W. T. (Warrington)
Wool, Robert
TELLERS FOR THE NOES


Wilson, Gordon (Dundee, E.)
Wrigglesworth, Ian
Mr. Laurie Pavitt an


Wise, Mrs. Audrey
Young, David (Bolton, E.)
Mr. John Golding.

Question accordingly negative.

6.0 p.m.

Mr. Maurice Macmillan: I beg to move Amendment No. 69, in page 11, line 26, leave out 'the deduction' and insert
'a deduction of 50 per cent. or such larger deduction as is'.
This is a narrow amendment, which I hope the Chief Secretary will be able to accept. Although it covers a relatively small range of individuals, they are important. It is designed to ensure that British companies are in no circumstances put at a disadvantage compared to other companies because they have no overseas subsidiary. We have been debating and shall again debate suggestions relating to Schedule 2 about foreign emoluments for people resident or ordinarily resident in the United Kingdom, those in Case I, and persons who are not resident here or who, if resident, are not ordinarily resident— those under Case II.
The amendment applies only to Case II and would provide that whatever the deduction under Schedule 2 for foreign emoluments the deduction of foreign earnings for non-residents should be 50 per cent. A foreigner working in the United Kingdom who receives some of his reward abroad as foreign emoluments already qualifies for only half his income to be taxed under United Kingdom law. The amendment would produce the same effect whether or not the firm were domiciled in the United Kingdom.
Foreign emoluments can arise only for someone who is not domiciled here and whose employer is non-resident. They do not apply to foreign earnings of employees of firms resident in the United Kingdom, regardless of the domicile of the earners. This means that if a British firm without an overseas subsidiary employs a foreigner, that foreigner is at a disadvantage compared to anyone else employed by a British company and working abroad, or a foreigner employed by a foreign company and working in the United Kingdom. There are technically, no foreign emoluments, although the firm concerned trading

abroad may be able to pay its nonresident employee overseas.
This means, for example, that if a wholly English company with no overseas subsidiary and no foreign links, apart from branches or trading agencies, is employing here a non-national, someone who is not domiciled here or who, if resident, is not normally resident, and this employee is paid part of his salary at his home, he cannot be treated as if he were a foreign employee of a company which has either an overseas subsidiary to pay the salary or of one which is itself a subsidiary of a foreign company.
This may be a narrow point, but it is important. It means that it is impossible for a wholly English company to employ, say, a Dutchman as an agent abroad and pay part of his salary in Holland on the same lines as a Dutch firm employing him sometimes in England, sometimes abroad, and paying part of his salary in Holland.
The reason that we have confined the amendment to Case II and have put it down to the clause rather than the schedule is that this proposition is wholly independent of the question whether or not the proportion is altered when we debate the schedule. The general case has been made out for an amelioration, which the Chief Secretary, not unreasonably, said that he would consider when we debate Schedule 2. But this amendment cannot be made to Schedule 2 because that deals wholly with foreign emoluments. The reference in this clause to Case II is to the deductions provided in Schedule 2 for the emoluments, if they are foreign emoluments. I am simply saying that if they are not technically foreign but are paid abroad by a British firm, they should be treated in the same way. I hope that the Chief Secretary will be able to meet this point.

Mr. Joel Barnett: I am sure that the Committee is now aware how complicated these matters are, with or without the amendment.
The amendment would affect persons who are not resident in the United Kingdom and also those who are resident but not ordinarily resident. An example would be someone who normally lives


and works abroad but comes here to work for a short period. The amendment would give him, first, a deduction of 50 per cent. in any case and then, under Schedule 2, a deduction where the earnings are foreign earnings. In practice, only half his earnings for the job he does in the United Kingdom would be charged to tax, whether or not they were foreign emoluments.
In other words, a foreigner living here but not yet ordinarily resident—staying here for a short time—would, under the amendment, pay tax on half his pay, whether his employer was a foreign company or a wholly British company. If a foreigner came here for a short period to work for British Rail or ICI, under the amendment he would pay tax on only 50 per cent. of his earnings here.
The earnings in the United Kingdom of people within Case II of Schedule E already qualify for a 50 per cent. deduction if they are foreign emoluments. I apologise for the word "emoluments" which I do not like, but I gather that it covers all sorts of things which another word might not. So the amendment affects only those who are within Case II but who are either domiciled in the United Kingdom or are domiciled abroad but are working for concerns resident in the United Kingdom. It shows how easy this is.
Both categories are treated under Clause 14 in the same way as under the present law. There seems no reason why the full amount of their earnings in this country should not be charged to tax. The reasons for giving a deduction for foreign earnings or emoluments cannot apply as only their earnings for duties carried out in this country are liable to tax.
There is often provision for relieving these earnings from United Kingdom tax by way of double taxation agreements. Where the person concerned is not resident here the double taxation agreement with his country of residence would normally provide that his United Kingdom earnings are not taxed in the United Kingdom. It would depend on the person and the kind of double taxation agreement existing with the country concerned.
A person who is here long enough to become resident, though not ordinarily resident, will continue as before to be

liable to tax on his earnings in this country, without a special deduction, unless they are foreign emoluments. That is neither unreasonable nor unfair. I cannot imagine what justification there can be for taxing a man working in this country on only half of his earnings— whether he be a non-United Kingdom citizen or otherwise—if, under the terms of the amendment, a non-United Kingdom citizen working beside another in the same factory, shop, office or warehouse would pay only half as much tax as the other. That cannot be right. Those are the reasons why I cannot accept the amendment.
Our rule in the United Kingdom is much less stringent than that in the United States. Under the United States rule they would be liable to pay tax on the full amount of world income in similar circumstances. We are not saying that.
For those reasons I hope the right hon. Gentleman will accept this explanation.

Mr. Macmillan: I understand the Chief Secretary's argument. I, too, apologies for using the word "emoluments". I do so because of its technical meaning.
If a United Kingdom firm with a wholly-owned subsidiary overseas seconds from that subsidiary to its United Kingdom head office, someone from that overseas subsidiary, and that person continues to be paid from the overseas subsidiary, he is treated better than his opposite number who is coming from a branch rather than an overseas subsidiary, because, being from a branch, he must be on the payroll of the parent company and not on that of the overseas operation. I should be glad if the Chief Secretary would undertake to look into that aspect of the matter.
I am concerned that English firms without overseas subsidiary companies should be able to bring back someone from their branch or allied organisations and still make part of their payment without deducting the full tax.
This is important as regards some trainees from the developing countries. There are firms which bring people from Africa to train in this country. I speak from my personal experience of editorial staff. Although these persons are perhaps not members of the company, they are paid while working for


it. They are paid partly abroad. These are not technically foreign emoluments. These persons do not necessarily remain part of our staff. They may return to work for the Ghana Government, for instance, as school textbooks editors. I do not want anyone to be inhibited from bringing persons to train here because of the different tax treatment of those people simply because of a technicality about what are or are not foreign emoluments.

Mr. Barnett: I cannot promise. But it will be a pleasure to have someone look at the matter. I shall be writing to the right hon. Gentleman.

Mr. John MacGregor: I should like to raise one technical point, which I do not fully understand, although I do not wish to make the confusion worse.
It has been suggested that there is a difference of treatment of a United Kingdom company, for instance, in the North Sea oil situation. For instance, a small United Kingdom company based in Aberdeen with no overseas subsidiaries wishes to employ for a period an expert from the United States. The payments it can make to him will inevitably be taxed at United Kingdom rates compared with a similar company which has an overseas subsidiary and somehow manages to balance the two payments, so that the company with the overseas subsidiary is slightly better placed. This amendment would help with that although it may drive a coach and horses through other aspects. Would the Chief Secretary please look at that?

Mr. Barnett: Although the amendment would drive a coach and horses through it, we will look at that.

Amendment negative.

6.15 p.m.

Mr. Higgins: I beg to move Amendment No. 61, in page 11, line 31, leave out subsection (2) and insert:
' (2) Where a person performs any duties of an office or employment in the United Kingdom the emoluments from which are assessable under Case I of Schedule E and, in addition, he receives emoluments in respect of duties performed under a directorship or employment to which section 198 of the Taxes Act 1970 applies, such part only of his total emoluments shall be deemed to be in respect of duties performed wholly outside the United

Kingdom as is just and reasonable taking into consideration the nature of those duties and the period of time during which the person was engaged on them. Any remaining part of the total emoluments shall be assessable under Case I of Schedule E'.

The Temporary Chairman: With this we shall take Amendment No. 57, in page 11, line 31, leave out subsection (2) and No. 67, in line 36, leave out from 'that' to end of line 38 and insert:
'the emoluments were just and reasonable having regard to the duties performed by him wholly outside the United Kingdom',
and Government Amendments Nos. 56 and 55.

Mr. Higgins: It would be for the convenience of the Committee to take the amendments in the order you, Sir Myer, have suggested.
The amendments raise a number of points. In one respect we have seen that the Government have had second thoughts. They have put down Amendments No. 56 on the Order Paper, although it is not as perfect as it might be. None the less, the Government have shown that they have looked at the matter and are prepared to suggest some amendment. I shall ask them to go further than they would apparently at this stage wish to go.
I have sat opposite the Chief Secretary for the last three or four years. I have been told by him that VAT was a very complicated tax, contrary to the view I have expressed. To find him now putting forward this collection of clauses, and the complex issues involved, reinforces my view that it would be difficult to devise a tax as simple as VAT. Equally, it would be difficult to devise a tax more complex than this one, once one begins to look behind the wording, because, although the wording is not long, the points covered by the wording are very complex. Partly for the reason he mentioned, the words "emoluments" and "domicile" and other technical words embody what would otherwise take up several paragraphs. The use of jargon in that context is helpful.
Amendment No. 61 is to some extent paved by some of the other amendments which have been related to it. We wish to pursue this point because we are concerned at the way in which the Government seek to put in the Bill as now


drafted the onus of proof on the taxpayer in a way which we feel is not justified. Indeed, in purely practical terms, we have some doubt whether it can be operated.
Perhaps I am mistaken but I thought I saw the Chief Secretary nodding in response to these remarks. He seemed a little in sympathy with what I am saying. Perhaps I might spell out the point in the hope of persuading him as the evening goes on.
The reason for Amendment No. 61 is that it is frequently the case that the employees of a United Kingdom company are seconded abroad for varying periods to work for an overseas subsidiary to provide technical and managerial services to the overseas subsidiary. That is a frequent commercial practice that may produce overseas earnings for this country, which in all economic circumstances are likely to be important. It is also true to say that in many cases the period of absence abroad of the expert or technician—he may be an accountant or scientist, for example—is remunerated by the overseas company and not necessarily by the parent company. The clause would treat such remuneration, as I understand it, as fully taxable in the United Kingdom without deduction unless —this is the crucial part of the clause— the employee shows that his overseas earnings relate to an employment abroad which is unconnected with his employment in the United Kingdom.
A moment's consideration suggests that that is not a matter which is easy to prove, because it may well be that the expert concerned is employed by his company in the United Kingdom and is paid in the way I have suggested. But, clearly, the subsidiary company has some link with the parent company. That being so, it may well be that in many cases it is extremely difficult for the individual concerned, or his company, to show that what he has been doing abroad is not connected with his employment in the United Kingdom.
I think it may be the case that in reality the operation the expert is conducting abroad is quite separate and that he simply goes from here to there and returns to base from time to time. In such a case, the two operations in any technical sense are quite separate and, indeed, in any economic sense may be

quite separate, except to the extent that the particular individual is employed by a company in this country which has subsidiaries abroad.
It is not clear how the employee would discharge the onus of proof. There may be many instances where, for purely commercial reasons, the point of the overseas employment is that it would be connected with the employment in this country. But there seems no reason why such commercial arrangements should be attacked as a whole. The real point of concern, I presume, given the origin of these clauses, would appear to be that overseas employment or emoluments might be loaded at the expense of earnings in this country. I take the main point about which the hon. Gentleman is concerned, to be that a chap is employed here, works for a subsidiary abroad and in the event gets more money paid overseas than is really justified by the value of the operation he undertakes there. That I believe to be the crux of the matter.
If that is so, the amendment would stop any attempt at such artificial avoidance without affecting normal commercial arrangements. There is no partisan point in this. We are seeking, as my right hon. Friend the Member for Farnham (Mr. Macmillan) suggested, to improve as well as we can the clause as drafted. It may be that one ought to scrap clauses 14 to 18 altogether, but, given that we cannot do that, this is one of the points which should be cleared up because we do not see any point in putting legislation on the statute book which in practice it will not be possible to operate. At the same time, as we have pointed out, we are quite certain that it is right that abuse should be stopped, and we would not wish to open a loophole in that respect.
I turn now to Amendment No. 57. We are not clear why the Government think it reasonable that if a duty is carried out wholly abroad which has any connection whatever with the United Kingdom employment the earnings of that foreign emolument should not qualify for the 10 per cent. deduction. It should be sufficient that the duties are wholly abroad to qualify for the 10 per cent. deduction, whether there is any connection with the United Kingdom employment cr not. This is another point on


which we hope to be able to persuade the hon. Gentleman.
Amendment No. 67 is directed at the point that the clause catches all foreign earnings related to employment in the United Kingdom. The suggestion of my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), in whose name the amendment stands, is that, in place of the Government's proposal "just and reasonable" earnings overseas should be taxed as foreign emoluments. No doubt my hon. and learned Friend will explain Amendment No. 67 more fully.
I come now to Government Amendment No. 56. The provision to which it relates is designed to prevent tax avoidance, and we understand that. But it is arguable in this instance that it goes wider than necessary. We are seeking to remove the unnecessary side effects so that the employee, whether he is a foreigner working here, or, alternatively, a United Kingdom citizen working abroad, could prove simply that he had been paid emoluments regardless of his employment in the United Kingdom. Government Amendment No. 56 relates to this point, but it seems to us that it has disadvantages, that the expression "would have been" is very difficult to prove. The Government propose to leave out the words
they would have been paid
and to substitute
their amount would have been the same".
We are not clear how it is that the Government think that anyone is going to prove what the amount would have been even though it did not happen, so to speak. I think that our amendment is better than the Government's and has a great deal to be said for it.

Mr. Joel Barnett: It is different.

Mr. Higgins: The hon. Gentleman says that it is different. We will listen with interest to how he explains that it is different. At all events, subject to what he has to say and whether he can persuade us on the point, our impression is that our proposal is better, and we are not convinced that it is significantly different from what the Government themselves have now suggested.
We are trying to make it easier for people to present a case to the Inland

Revenue. This is something which ought to be in favors of the taxpayers. There is no point in passing a law which simply makes it unnecessarily difficult for taxpayers, who are otherwise working to the benefit of the country and the economy, to make a case to the Inland Revenue, with all the corresponding consumption of time and diversion from their normal duties.
I hope that the hon. Gentleman will look favorably on our amendments and at any rate suggest that a selection of them should be agreed to.

6.30 p.m.

Mr. William Clark: Amendment No. 57 goes further than that of my hon. Friend the Member for Worthing (Mr. Higgins). I want to delete the whole of the subsection. I am sure that the Chief Secretary will not agree with this. I thought that this subsection was aimed at the situation where a person, having lost a remittance basis of relief, switches his emoluments to a foreign country. No one condones this sort of evasion. I am afraid that the wording of the subsection will hit a lot of innocent people who are not indulging in any tax evasion.
I must declare an interest, in that I am a director of a company which from time to time sends experts overseas in connection with particular projects. Obviously they are paid overseas.
This subsection will make the job of finding expatriates to go abroad for a short time extremely difficult. It can be a fairly traumatic experience for expatriates. They will no doubt leave their wives and children for a while. There may be educational problems, and so on. There are problems for the industrialist in persuading the employee to go abroad. If a man goes abroad and is then penalised by having his tax increased, I fear that we shall not get sufficient recruits.
Taken in its wider context, we must consider those who go abroad, under the aid programme, for instance—agronomists, economists, and so on. It could mean that the developing countries will suffer because of the sledge-hammer which the Government are using to stop the evasion that comes from remittance and artificially transferring one's income abroad.
The economy of this country is not as strong as we should like it to be. Consequently, it is incumbent on any Government to make certain that nothing is done to harm our invisibles. I have no interest in engineering consultancy but I am told that the amount of capital work which British consulting engineers are currently carrying out abroad adds up to nearly £4,000 million. In 1973 nearly £60 million was contributed in this way to our invisible earnings. We must not harm those in any way. We must of course eradicate any sort of evasion, but let us not use a sledge-hammer to get rid of the evasion and damage our invisible earnings in the long term.
I hope that the Chief Secretary will consider this sympathetically. I can assure him that we shall come back to it, not necessarily on this Clause. No doubt in Committee we shall be able to have general debates pressing this point under Schedule 2 and other clauses.

Mr. Peter Rees: Until my hon. Friend the Member for Croydon, South (Mr. Clark) intervened—I have the most profound respect for his expertise in these matters—I thought that I understood subsection (2). Having listened to him, I feel that one of us is at fault. I shall listen to the Chief Secretary's intervention with great interest. As I understand it, the subsection is meant to cover the case of a person who holds two directorships—one in a United Kingdom-based company and another—I choose the country at random—with a subsidiary based in Liberia. He spends three-quarters of his time in London working for the United Kingdom-based parent company and a quarter of his time in Monrovia working for the Liberian subsidiary.
By an extraordinary chance when his aggregate emoluments are examined, it is found that three-quarters attach to his Monrovian duties and only a quarter to his London duties. It may be that in certain situations that would be an obvious abuse of existing rules. I think that there is a case for saying that that kind of situation could be dealt with under existing law. However we know the predilection of the Government, and the Departments which back them up, for the overkill.
I assume it was to achieve this overkill that subsection (2) was introduced. It is certainly an overkill, because it would be practically impossible, in all but rather unusual circumstances, to meet the rather stringent tests it imposes. The taxpayer would have to show that the payment for his Monrovian duties would have been made irrespective of whether he performed any duties in London. In most cases the payment by the Liberian company would have depended on the tenure of his position with the London company. If he were sacked by the London company it would almost certainly follow that he would be sacked from the Monrovian subsidiary. So he would not be able to say with a clear conscience that his Monrovian salary would have been paid irrespective of whether he performed any duties in London. I assume this was the point of the subsection. But it has gone a little too far and imposes an impossible duty upon such a person.
The Chief Secretary has tabled an amendment but I am not persuaded that it quite cures the defects, if I have identified a defect in the subsection. If the Committee carries the Government amendment it will mean that a person in the situation I have described has to demonstrate that the amount of his Monrovian emoluments would be the same whether or not he performed any duties with the London-based company.
Assume the situation I have outlined. Assume the man has these two situations and that he has been sacked from his London company. Can he really say to the Inland Revenue "Yes, My Monrovian emoluments would have been the same."? In reality he would be bound to say that he would have lost his Monrovian position too.
Admirable though the Chief Secretary's amendment may be in its intention, I hope, it does not meet the situation which Amendment No. 67 seeks to cure. I would ask the Chief Secretary to look with a little more sympathy than he may be disposed to at the moment at Amendment No. 67 because it seeks to set a different test. The test is that the person in question should be able to say" The duties I have performed in Monrovia are genuine. The emoluments I have been paid are in proportion to those duties. I satisfy you on that point, and, therefore,


there is no argument about the basis for taxation on those Monrovian emoluments.
My amendment has the same objective as that of the Chief Secretary. Without immodesty, I and my hon. and right hon. Friends like to feel that it is a little more exact. This is not a great political point between us. It is almost a fine point of draftsmanship. I know that the Chief Secretary can be very experienced and confident in this area. But, should I have shaken his confidence by what I have said, should he feel that there is possibly a case for adopting Amendment No. 67 rather than his own amendment, may I suggest, since it is a point of draftsmanship, that he enlists the help of one of the Law Officers? I put that forward with due diffidence but, as it is a point of drafting and we know the Chief Secretary's expertise in taxation and tax avoidance, perhaps he will enlist a little support before turning down, if he is minded to, the amendment in my name.

Mr. Joel Barnett: I thank hon. Gentlemen opposite for the kind remarks that they have made about me—it is somewhat unusual. I always look at their amendments with understanding, even when I disagree with them. There is a considerable difference between what we propose and what hon. Gentlemen have in mind.
I will speak first to Government Amendment No. 56, because its purpose is to clarify the position. The taxpayer does not have to show that the two jobs are unconnected. The purpose of Amendment No. 56 is to make clear that it is not the intention of the subsection to prevent a person who has a job in the United Kingdom from also having a job which qualifies him for a deduction under Schedule 2. The intention is that, to qualify for the deduction, he will have to show that the emoluments of the overseas job would have been the same whether or not he had the United Kingdom job and that no part of the pay for the United Kingdom job has been diverted to overseas income. As the hon. Member for Worthing (Mr. Higgins) correctly appreciated, that is the purpose of the subsection.
6.45 p.m.
In moving Amendment No. 61, the hon. Member for Worthing spoke in much the

same terms as other hon. Members. Although the other amendments are slightly different, they are all on the same lines. Amendment No. 57 leaves out subsection (2), and Amendment No. 55, by providing that the taxpayer simply has to show that he is entitled to receive the emoluments, makes subsection (2) ineffective.
If a man who had a job here and a job abroad, with a total income from the two jobs of, say, £10,000, arranged to receive £1,000 here and £9,000 abroad when the bulk of the work was done here, under Amendment No. 55 he would simply have to show that he was paid the £9,000 abroad. In view of the way in which hon. Gentlemen opposite have spoken of the need to cut out that form of tax avoidance, I hope that they will recognise that that amendment would be ineffective.
We are dealing here with the type of tax avoidance that occurred because of the remittance basis. People were able to go abroad for a short period and earn substantial sums—and sometimes even receive golden handshakes—and as long as those sums were remitted here they were not taxed. We all accept that that cannot be right and must be changed. That is what the clause does. If we were to put the onus on an inspector of taxes to show that the payment abroad was just and reasonable, he would be in an impossible position. At the same time, I do not like the idea of putting the onus on the taxpayer because that is not a provision that we want in our tax laws any more than in our courts of law.
The hon. Member for Worthing said that by taxing too heavily a United Kingdom citizen we might prevent him from going abroad for a short period. The hon. Member for Croydon, South (Mr. Clark) also put forward that argument. He said that the provision would catch British consultant engineers who wished to go abroad with their wives and families. If they went with their wives and families they would normally go for longer than a year and would, therefore, not be caught by the clause. They would not pay United Kingdom taxes. Some might take their wives and families abroad for less than a year, but it would be nonsense to allow a man to go abroad


for one week of the year and arrange to have paid to him substantial sums free of tax. That is why it is essential to put the onus on the taxpayer rather than on the inspector.

Mr. Peter Rees: With respect, the Chief Secretary does not wholly understand Amendment No. 67, which stands in my name. There is no question of shifting the onus of proof. The onus of proof is always on the taxpayer to dispute an assessment, except when it is out of time. It is merely that the form of words in my amendment is more apt to achieve in a reasonable way the objective which he and I apparently share.

Mr. Barnett: In that case, unfortunately, the objective which the hon. and learned Gentleman has in mind would not be met in many cases. The inspector of taxes would have to show that the amount that the taxpayer was claiming as having been earned or paid abroad was just and reasonable, and it would put the inspector in an impossible position.
The effect of Amendment No. 67 would be that the inspector of taxes and the appeal commissioners would have to prove that the claim was not just and reasonable. The point I am making is that they would not be able to prove that fact. If a man receives some of his income in Monrovia because he works there, and some income here, and if that man wants to avoid tax, the inspector of taxes would not have the slightest chance of discovering whether what that man said about income abroad was right or wrong. But if there were a genuine case involving a man who has been to Monrovia and earned, say, a quarter of his income there, that man would have no difficulty in proving that to the inspector's satisfaction. In those circumstances the man's earnings in the United Kingdom would be taxed in one way and what he earned abroad would be subject to deductions allowed in Schedule 2.
I hope that is reasonably clear—and if it is not clear I shall clarify it further. That is the situation. If we leave the matter as the amendment suggests, it will be extremely difficult for the Inland Revenue to cut out the avoidance of tax —and all hon. Gentlemen want to see the situation put right. For this reason, I

hope that the amendment will be withdrawn.

Mr. Peter Rees: I hesitate to detain the Committee, but it is becoming evident that the Chief Secretary has not understood the problem. He has not understood my amendment, or his own. The onus of proof in tax matters—I hate to talk like a lawyer, but I am one—is always on the taxpayer unless an assessment is raised out of time. Therefore, the Chief Secretary talks nonsense when he says that the onus is on the inspector. The onus remains on the taxpayer throughout to justify his foreign emoluments.
Since it is clear that the Chief Secretary is confused, and has confused the Committee, I suggest that on this small but important point—a matter that is likely to affect a whole range of people- -the Committee might have the assistance of one of the Law Officers to give an authoritative ruling on this point. I do not think it right that the Committee should proceed in a state of total confusion when the Chief Secretary does not understand the position or, indeed, the amendment which he supports.

Mr. Barnett: I am sorry if I have upset the hon. and learned Member for Dover and Deal (Mr. Rees) in his present legal mood, but may I tell the Committee what the effect of the Opposition amendments would be? This matter relates to Clause 14(2) in respect of a taxpayer who has an overseas job as well as a United Kingdom job. I am sorry if I have confused the Committee, but we are now dealing with a complex tax matter which probably few people outside understand. The amendment relates to a situation where the pay for an overseas job has to be shown to be bona fide related to the job. Under the amendment the only criterion for the overseas pay is that it should be just and reasonable. I am saying that that is not a satisfactory way of going about the matter and that it would be impossible for an inspector of taxes to prove that such a claim was reasonable. That is why I resisted the amendment. I am sorry if the hon. and learned Gentleman does not understand the situation.

Mr. Cope: I am sorry to delay the Committee, and I shall do so for only a moment, but my hon. and learned Friend


the Member for Dover and Deal (Mr. Peter Rees) has raised an important point. I am an accountant rather than a lawyer, and it is accountants who to a large extent will have to use this legislation in whatever form it is passed by Parliament.
I do not see how the Chief Secretary can argue that the onus will be on the inspector. If the amendment proposed by my hon. and learned Friend were passed the legislation would state that emoluments would not be treated for the purposes of Case I of Schedule E unless the taxpayer
shows that the emoluments were just and reasonable having regard to the duties performed by him.
Clearly the onus would be on the taxpayer.

Mr. Barnett: How on earth is the inspector to judge whether a claim is "just and reasonable "? He has no chance of being able to prove that fact, nor has an appeals court.

Mr. Cope: I do not think that the situation gets to that stage until the inspector is satisfied that the taxpayer has not shown a claim to be reasonable. I believe that Government Amendment No. 56 is defective, since it imports the idea that the amount would be the same. This would apply, presumably, whether or not the United Kingdom job had been performed. If, for example, a professor from a British university were to deliver abroad a number of lectures, the amount he received would in part be received because he is a professor from Oxford, or wherever it may be. If he were not a professor at Oxford, the amount he received for the lectures would be different. It seems to me that, if we are to achieve the aim which both sides of the Committee have in mind, this is not a reasonable test to apply.

Mr. Higgins: One or two of my hon. Friends have apologised for delaying the Committee, but although we are discussing this matter on the Floor of the House we should not be in any hurry to dispose of it. Certainly, if we were in Committee upstairs, we should probe the matter thoroughly, and I believe that we should also carry out that process when we are discussing matters on the Floor.
I find myself sandwiched between two accountants and one lawyer. I speak in these matters as a humble economist. Perhaps it is rare for economists to admit that they are humble, but in the middle of this discussion I feel that I can do so without any fear of embarrassment.
The Chief Secretary should consider whether the Law Officers could help on this occasion. It is a brave man who tells my hon. and learned Friend the Member for Dover and Deal (Mr. Peter Rees) that he does not understand a matter of this kind and does not understand the way the onus of proof should go in a particular case. I think we might well have the Law Officers' views on this topic.
It seems to me that the Chief Secretary got perilously close to saying that neither the taxpayer nor the Inland Revenue will be able to prove what is at issue, and that therefore the onus should be on the taxpayer. That is a rather dangerous situation in which to find oneself.
My hon. and learned Friend said that, whether or not we accept these amendments, the onus is always on the taxpayer, except where the matter may be out of time. He further argued, as I understood him, that that would be the case regardless of whether the amendments were accepted. I am not clear whether the Chief Secretary agrees with that point of view. We should be clear whether that is the point at issue and the Chief Secretary should make his position clear. I understood the hon. Gentleman to disagree with my hon. and learned Friend. If that is the case, I believe that we should have the advice of the Law Officers.
I am not clear whether there is a distinction between deciding whether the onus of proof is on the taxpayer to show whether a claim is just and reasonable, or whether he has to prove that he has paid that amount regardless of whether he has a home company. Perhaps I did not express that very clearly. There are two things that a taxpayer or the Inland Revenue may be asked to prove. They are either that the amount that has been received abroad is just and reasonable or, alternatively—and it is alternatively, because it is not the same thing—that the amount he is paid is such that he would have been paid that amount even though he had no base, that is to say, no home


company. I agree with the view which was implicit in one thing that the Chief Secretary said, that the time apportionment basis might not be right. Let us take the simple case of a highly qualified surgeon. He may go abroad and conduct a particularly difficult operation the pay for which reflects his expertise as a doctor rather than the length of time he spends abroad. That case could not be dealt with purely on a time apportionment basis.
May we have an answer on the specific point made by my hon. and learned Friend the Member for Dover and Deal? If that is the difference between us, we need to resolve it.

7.0 p.m.

Mr. Herders: I support what was said by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees). As I understand it, the Chief Secretary is not arguing that the onus of proof is on the inspector. As my hon. and learned Friend said, the onus of proof must remain with the taxpayer. The Chief Secretary says that it remains a matter for the inspector to decide whether it is just and reasonable and that, therefore, means, in effect, that the onus of proof should remain with the inspector. My hon. and learned Friend tells me that the words "just and reasonable" are frequently used where the onus of proof lies absolutely with the taxpayer. If that is the case there is no change in terms of where the onus of proof lies. It therefore seems that this amendment is preferable to the one the Government are proposing. Although this is a small point it is one that should be recognised and met—now, with the assistance of Law Officers, or on Report, or at some other time.

Mr. Nott: I always wanted to place this matter on a "just and reasonable" basis. If the onus of proof is on the taxpayer, we are faced with the problems which the Chief Secretary mentioned— the question how the tax inspector deals with such a matter. But of course the tax inspector must decide, in a whole range of other matters, what is just and reasonable. He must apply that judgment to all the claims under Schedule D, deciding whether a claim for expenses is just, fair and reasonable. Of course, as in all matters of government, Ministers must accept, ultimately through sheer exhaustion

what they are told by Departments. In government I sought to help the Revenue a little more by introducing the time apportionment basis. But the taxpayer would have been able none the less to try to show that the time apportionment basis was not just and reasonable because he performed extremely valuable services in, say, Monrovia but he was a moron at his job in the United Kingdom. Hence, the onus is on the taxpayer to show what is just and reasonable. I do not understand why, in this one area, this method of approach is unsatisfactory. I never shall. Some day someone may be able to explain it to me, but after two years of instruction I am still dumbfounded.

Mr. MacGregor: If the taxpayer has difficulty in proving to the inspector what is just and reasonable, will it not be equally difficult for him to prove that the amounts would have been the same and to get the inspector to agree?

Mr. Barnett: The difficulty is—this deals with the point raised by the hon. Member for St. Ives (Mr. Nott)—that the clause seeks to put the onus on the taxpayer. The hon. Member asked why in this area alone that should not happen. The answer is that this is a complex area, involving remittance, overseas earnings, domicile, and so on. Anyone who has been in this Committee in the last hour or so will have come to the reasonable conclusion that these are difficult matters.
If an inspector of taxes or the appeals commissioners had to decide whether or not a taxpayer was correct in saying that the £10,000 he earned abroad was just and reasonable, the only real evidence that the inspector would have on which to do that would be that the money had been earned. That would have to be accepted as prima facie evidence. That is the basic reason for the difficulty. There would be no other way in which an inspector of taxes or the appeals commissioners could deal with the case. That is why, if the amendment were accepted, a situation would be created in which the avoidance would not be removed and a substantial loophole would be left.
I am not a lawyer, and I would not wish to argue matters of law. I therefore promise the Committee that if, on further examination—which I shall certainly arrange to be carried out, in view of the


legal knowledge of the hon. and learned Member for Dover and Deal (Mr. Rees), which is much greater than I could ever wish to have—it turns out that I am wrong, I shall bring the matter back on Report. However, as I understand it, the result would be as I have explained to the Committee, and I hope for these reasons that it will accept that the amendment will make matters worse.

Mr. Nott: The Committee will be pleased to hear that in two minutes' time I must leave to take part in a television programme. We could not have had a better illustration than has been provided by the debate that this subject is the most obvious candidate for a Green Paper. It is such an important matter. However much economists, lawyers, bankers and layment in the Committee may argue, this whole area is an extremely sensitive one. We could get it wrong. If the Royal Commission on Taxation could discuss this matter in great depth and could come to a conclusion which could then be changed—as it was when Mr. Macmillan was Chancellor in 1956, as a result of a debate in Committee—Ministers will not be humiliating themselves but doing the sensible thing if they decide that there should be consideration in depth.
I said originally that this matter had not had the process of outside consultation which I genuinely believe it deserves.

Mr. Peter Rees: I hope that the Committee will forgive me for intervening once again. It seems that we are making a little progress. The first objection raised by the Chief Secretary was that it would put an impossible onus on the inspector of taxes. However, after mature consideration, he has now changed his mind and has said, "Yes, the onus is on the taxpayer but it would be difficult for the inspector to challenge the taxpayer's evidence". We have seen a substantial change of view.
I take up the point made by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). If it is difficult for the inspector to challenge the taxpayer's evidence that emoluments were just and reasonable, why is it easier for the inspector to challenge the taxpayer's evidence that the emoluments would have been just the same?
The Chief Secretary has been candid, disarming and charming, as he so often is. He would add greatness to his qualities if he admitted that he totally fails to understand the problem. In the long run it seems that the only answer is to have a Green Paper. We can revert to that on the debate which I hope you will be allowing, Mr. Murton, on the debate on the clause.
If we are to make any progress on these points, I suggest in all humility, as a lawyer asking for lawyers' assistance, that the Law Officers should clarify the matter. I should accept their view. We should accept the view of such a distinguished quarter. If we had their clarification we could get away from these arid legalisms and turn to the broader question of whether the clause should stand part of the Bill.

Mr. Joel Barnett: If I said that I failed to understand the whole of this matter I would not be achieving greatness but telling lies to the Committee. I shall do what I have said, which I hope will be acceptable to the Committee.

Mr. Higgins: None the less, it might be helpful to consolidate the progress which, as my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) has rightly said, we seem to be making. Of course, we have a long way to go yet before the Bill gets anywhere near Third Reading.
Are we to understand that the Chief Secretary agrees that whether or not the amendments are accepted the onus of proof is on the taxpayer? I hope that we can have a clear answer. That would help us at a later stage.
I turn to the point made by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). Is it the case that there are two alternatives before us—namely, that the taxpayer must discharge the onus of proof in any event and that he can say that what he has received is fair and reasonable, or, alternatively, that what he has received is the same as if he had no United Kingdom employment? Do we have those two alternatives before us? At a later stage the House, as it will then be, may well feel that it would like to make a choice between those two alternatives.
I have the general feeling, which is shared by many of my hon. Friends, that I would prefer the taxpayer to have to show that it was fair and reasonable rather than just the same. To show that it is the same is a difficult proposition. I do not understand how the taxpayer would begin to set about achieving that task, whereas to show that it is fair and reasonable is something that the taxpayer may seek to do.
If we could have the Chief Secretary's answers on these matters—I hope that he can answer them first time round without having to come back yet again— we might accept his undertaking that he will return to the matter on Report. I hope that if necessary he will return with the Law Officers, although, as has already been pointed out, my hon. Friends and I would prefer to have the whole matter more broadly discussed within a Green Paper.

7.15 p.m.

Mr. Joel Barnett: If I came back with the Law Officers it is my guess that the debate would be even more arid than has been suggested. Equally, that would apply if we had a Green Paper. Following a Green Paper there would probably be a Bill, and I believe that the matter would then become even more complicated. I do not accept that argument. The onus of proof is on the taxpayer, but in practice an impossible position would be created, as the inspector would not be able to disprove that what was put forward by the taxpayer was just and reasonable. The inspector would find his position totally impossible. That is why I have not been able to accept the amendment.
I am sorry if the matter is not clear to some hon. Members. If an inspector had to disprove that a payment—it could be substantial—had been just and reasonable he would place himself in an impossible situation. He could not do anything about it. That is why the onus is on the taxpayer and that is why I am not prepared to accept the amendment. I am terribly sorry.

Mr. Higgins: I am sorry to come back yet again. I hoped, as my hon. and taught Friend the Member for Dover and Deal had said, that we were making some progress. We now seem to have

taken a step backwards. The point put forward by my hon. and learned Friend, which is supported by other of my hon. Friends, is that in any case—accept the amendment or not—the onus is on the taxpayer. However, we cannot see why that is relevant to the question whether the amendments are accepted. Does the hon. Gentleman accept that?

Mr. Barnett: The onus is on the taxpayer, but, as I have tried to explain, the situation becomes impossible for an inspector. I thought that I had said that earlier. If I did not, I apologies.

Mr. Higgins: That does not make sense. We must get the matter straight. I hope that the Chief Secretary will try again, as it is important that we get the matter right. That is why it has been suggested that we should send for the Law Officers, or at least one of them. If the onus is on the taxpayer whether the amendments are accepted or not the hon. Gentleman cannot say that the position which is created is impossible, because that is what his own Bill is doing. It may be that his Bill is impossible. If so, he should say so more clearly than he has up to now.

Mr. Cranley Onslow: I hesitate to intervene, but I am depressed, Sir Oscar, to see the Chief Secretary happily giggling his way through this debate. He throws up his hands and does not try to answer a crucial question. There are two states of affairs—we shall have the Bill either unlamented or as it is sought to be amended. If the Chief Secretary is saying that the onus is in the same place whether or not the Bill is amended, will he make one final enormous effort to get to the Dispatch Box and say these words after me: "The onus is in the same place under the Bill whether or not it is amended."?

Mr. Barnett: It would be difficult to make the matter clear to the hon. Member for Working (Mr. Onslow), who has not been in the Chamber for most of this afternoon. I have made it clear that the onus is on the taxpayer. However, if the amendments were accepted the inspector of taxes would be in an impossible position because he could not disprove that a payment abroad, which would be a form of evidence, was just and reasonable.

Mr. Higgins: I think that the Committee will agree with me that the way in which the Chief Secretary has answered our questions has been highly unsatisfactory. However, we accept that he has been trying. We do not approve of the way in which he has reacted to some of our remarks. I believe that the best thing to do is for us to put clearly on the record that we expect the Chief Secretary to return to this matter on Report and for it then to be thoroughly sorted out. Let him then have a proper set of answers, or let the Law Officers explain the position. On that basis and on no other we are prepared to let this go.

Amendment negative.

Amendment made: No. 56, in page 11, line 36, leave out 'they would have been paid' and insert
' their amount would have been the same'. — [Mr. Joel Barnett.]

Mr. Maurice Macmillan: I beg to move Amendment No. 62, in page 12, line 29, leave out subsection (5) and insert:
'(5) In section 221(4) of the Taxes Act, for the words from "but" to "employment for that year" there shall be substituted "but the circumstances in which he performs the duties of his employment are such that the emoluments received are foreign emoluments or duties are performed wholly outside the United Kingdom"'.
The amendment is intended to improve the wording of subsection (5), which deals with the calculation of taxation of retirement benefits. The effect of the subsection as it stands is to amend Section 221(4) of the Taxes Act so that an employee will be taxed on sums provided by his employer on his behalf under an unapproved retirement benefit scheme unless there is no charge to tax from Cases I and II of Schedule E, as amended by the clause, subject to any further changes that might be made in Schedule 2.
What that means, in effect, is that, as the pension deriving from the sums with which the clause deals is also taxed, an employee may well effectively be double taxed, being taxed once on the pension and once on the sums going to provide it. I do not see how the Government can justify this form of double taxation. I do not believe that it is necessary in making the changes which the subsection makes to go so far as the subsection

goes. Our suggested wording achieves what the Government set out to achieve, without being so unfair, and without going to such great lengths.
Pensions arising in this country are already taxed. Clause 15 will abolish the remittance basis for foreign pensions and annuities. At least, we have still to go through the Committee stage on that clause, so perhaps it will not do so. But at present it does, and the amendment restores the former position for such pensions.
No one can doubt the injustice of suddenly applying United Kingdom tax to overseas pensions earned before April 1974, whereas pre-April 1974 earnings will not be affected. I do not understand the Government's reasons for leaving earnings before April 1974 unaffected and suddenly saying that United Kingdom tax will apply to overseas pensions earned before that date.
Such pensions are often paid from pension funds to which contributions were made from income wholly earned abroad, and income on which foreign tax was paid in full. By contrast, contributions in the United Kingdom receive tax relief. Therefore, it is perhaps not unreasonable to tax the pension itself. But no United Kingdom tax relief is given for contributions paid overseas, and, therefore, the argument cannot be applied with any justice or equity to overseas pensions.
Further, in some overseas countries no tax relief is given for pension contributions. That applies, for example, to the Middle East, Japan and Indonesia, all places where British people have worked for many years.
The amendment would restore an element of justice which the present wording of the subsection removes. We must bear in mind that many people who have retired from overseas employment still spend at least part of their year abroad. I do not see why they should pay United Kingdom tax on the income spent abroad for that purpose. It is money which has been earned overseas, resulting from contributions which have been paid overseas. It is money which frequently is spent overseas, money which often has received, in the hands of the owner, no tax relief for pension contributions.
There is a further minor point. People who have been working abroad and are


affected by the subsection have not benefited from the social services and other Government expenditure in the United Kingdom to nearly the same extent as United Kingdom residents have. Now they will be taxed as if they had.
The Government should see the justice of accepting the amendment. I hope that the Chief Secretary will be as direct and forthcoming in response to this appeal as he can be. I hope that we shall be able to settle the matter now rather than let it drag on until later stages of the Bill.

Mr. William Clark: I support my right hon. Friend the Member for Farnham (Mr. Macmillan), because there is a certain amount of retrospection in the subsection. The Chief Secretary should consider the amendment with more sympathy. I am sure that he is always sympathetic, but I want him to show a little more sympathy this time.
If a person goes abroad and joins a pension scheme, he knows that when he returns to this country he has a certain tax advantage. It is on that premise that he takes on the job. I fully agree with my right hon. Friend that pensions that are paid and have been earned before April 1974 should not be subject to the stringent controls in the Bill. Pensions earned by people going abroad for the first time after April this year are a different matter, because those people's terms of contract will take into account that when they retire there will be no tax advantage as a result of earning their pension abroad.
This is a question of retrospection. I think that if the Chief Secretary looks at it from that point of view he will see the validity of my right hon. Friend's argument. It is nonsensical that a person who has spent all his working life abroad— whether in the colonial service or in a company—and has been enjoying a pension with a tax advantage on the remittance basis, because it is a foreign emolument, should now have it cut on his retirement. The provision may be all right for new pensioners, but if the Chief Secretary does not exclude existing pensioners there will be an element of retrospection. I hope that the hon. Gentleman will reconsider the matter.

Dr. Alan Glyn: '. I support my right hon. Friend

the Member for Farnham (Mr. Macmillan) and my hon. Friend the Member for Croydon, South (Mr. Clark). The Chief Secretary could give way on this point, which is purely and simply a matter of retrospection. Anyone who enters a pension scheme after April this year knows what he is in for, and takes the consequences. But we are considering quite a large number of people who draw considerable benefit from having worked abroad. The Chief Secretary might very well give way on this small point.

7.30 p.m.

Mr. Joel Barnett: The amendment affects the tax treatment of contributions to an unapproved pension fund by an employer in respect of an employee. Under Clause 14(5) as it stands, these will be treated as income of the employee unless the emoluments of the employment qualify for a 100 per cent. deduction because they are in respect of duties carried on wholly abroad for 365 days or more or are "foreign emoluments" in respect of duties carried out wholly abroad.
The amendment seeks to extend the exemption, as the right hon. Member for Farnham (Mr. Macmillan) says, to cases in which, first, the "foreign emoluments" are for duties carried out in this country, and, second, the duties are performed wholly outside the United Kingdom but for fewer than 365 days. Where the foreign pension scheme can be approved by the Inland Revenue there is no problem. The employers' contributions do not rank as employees' remuneration. The foreigner who will now be liable on half his United Kingdom earnings and is a participant in a non-approvable fund in his home country presents something of a problem.
I am obliged to the right hon. Gentleman for raising this matter. Although, as I would like to show, the amendment would do rather more than we would want to do, I nevertheless would be prepared to recommend that on Report we have an amendment to meet the main burden of the right hon. Gentleman's argument.
Concerning the man based in the United Kingdom, it seems to us—this is another part of what the amendment would achieve—that there are no grounds at all for exempting the contributions to an improvable pension scheme. Such


differences as foreign jobs make are recognised; that is to say, by giving them the relief of the deduction from emoluments which extends to employers' pension fund contributions. Nor, as a practical matter, does it seem likely that the United Kingdom based man who goes abroad for a relatively short period and is paid from the United Kingdom will find himself a member of an unapproved fund. Such funds hardly exist. Section 221 of the Taxes Act is, in effect, an in terrorem provision, and no one is going to set up such a fund just for the man who goes briefly abroad.
That is the reason why I cannot accept the amendment. I hope that the right hon. Gentleman and other hon. Members will understand that. But I shall be prepared on Report to ensure that an amendment is tabled to meet the first part, which I have mentioned, of the right hon. Gentleman's amendment.

Mr. William Clark: Am I to take it from those remarks that the Minister will table an amendment on Report that will allow existing pensioners to enjoy the same tax benefits as they enjoy at present?

Mr. Barnett: I hope that the hon. Gentleman will allow me to look at the matter after we have finished this stage. I shall look at it carefully. I promise the hon. Gentleman that I will introduce on Report an amendment which will, I hope, satisfy him. If it does not, he has the usual option.

Mr. Maurice Macmillan: I am grateful to the Chief Secretary. I take his point about the difficulty of accepting the amendment as it stands. We shall look, I hope with approval, at what he proposes for the foreigner who is a member of a fund in his own country which is not approvable in this country, for whatever reasons. I hope that the hon. Gentleman will also include the Englishman who has worked abroad in the past or is working part-time abroad and is a member of a fund which is unapprovable partly because it is a foreign pension fund and some of the African and other developing countries do not allow such a fund to be approvable. That is another point which I hope will be covered in the hon. Gentleman's undertaking.
In view of the undertaking, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause, as amended, stand part of the Bill.

Mr. Onslow: When I was prompted to intervene briefly a little while ago I committed what was, if not a solecism, an unwarranted anticipation of an event which we hope will occur. I look forward very much to the time when we shall be addressing you, Mr. Murton, as "Sir Oscar". I shall try to stick to "Mr. Murton" for the time being, though I hope that it will not be a very long "time being".
I intervene on this occasion in the sense of someone who is a stranger in a strange club. I know how these debates are carried on between a small coterie of Members—though it is not too small, because I see a gratifying number of my hon. Friends present and a number of Ministers. The Ministers, however, are totally unsupported except by a Parliamentary Private Secretary and a recumbent figure. This must develop a sort of amity, a bonhomie. I understand that, in order to keep his end up, the Chief Secretary is bound to giggle from time to time. When intruders enter, it is as though a stranger comes. I do not care a row of beans if I did cause a certain frisson when I entered.
This is not a very good clause. It would be a great advantage if it were not in the Bill at all. I rely for that statement not merely upon my judgment of what the clause says but on my knowledge of what its effect will be.
In passing, may I say that I never quite understand why this particular exclusive club which meets from time to time to consider Finance Bills seems to get on without what other clubs which meet to consider other pieces of legislation usually regard as essential—that is, an Explanatory Memorandum. I thought that it might help me if I had a look at what the Explanatory Memorandum said about the clause. I could not find the memorandum. If any hon. Member could tell me where it is, I should be very grateful —although no, I would not be grateful, because it would prolong my speech.
Different rules apply in different places. I shall come to my point, which is a letter addressed to D. Healey, Esq., M.P., House of Commons. The letter was copied to me, so I suspect that the Chief Secretary has a copy in his archives. This admirable letter reads as follows:
Dear Sir, I wish to spell out to you some of the adverse effects which will result from the introduction of a taxation on the world wide income of foreigners, by stating facts.
My employer, an American, has indicated to me that if the proposal becomes law he will be forced to move out of the United Kingdom. The following will result from the movement of one man. Approximately 60 Britishers will lose their jobs. Many export orders placed at present in the United Kingdom will be placed abroad. There will be a loss in dollars to the United Kingdom of around $1,250,000 per annum. British charities, at present receiving several thousand dollars per annum from the personal pocket of my employer will suffer. If this is to be the result of one man leaving the United Kingdom the effect of the promised mass exodus could, I consider, be only to the detriment of the country.
I have spoken to a number of people whose political opinions range from bright red to bright blue and not one of them has expressed to me any opinion other than that they consider this proposed tax to be the height of stupidity. I strongly recommend, therefore, that fresh thought be given to the matter.
That is an admirable letter. I have not seen the reply from D. Healey, Esq. The letter was dated 2nd May, so I should have thought that a reply might have been sent by now. Perhaps the Chief Secretary will tell me whether a reply has been sent.
There is no point in my attempting to conceal the identity of the American concerned. He is Mr. Paul Getty. He is not the only American resident in my constituency or the only American who will remove himself and his business from this country if this legislation has the effect which my constituent supposes it will. I do not know whether the removal of Mr. Getty and other Americans from this country is the deliberate intention of the ventriloquist whose dummy is to answer the debate.

Mr. Joel Barnett: Oh!

Mr. Onslow: All right—the Chief Secretary did, perhaps, overdo it. I will take that back, if he will take back what he has said.

Mr. Joel Barnett: No, carry on.

Mr. Onslow: If this legislation is to go into the statute book, will the Chief Secretary tell us what information he has so far had about the number of people who will behave in the way which my constituent, who stands to lose his job, has said he believes may happen? What statistics have the Chief Secretary and the Treasury been able to garner about the exodus of Americans and others from British soil, where they have been conducting business which, directly and indirectly, has brought in substantial sums of money and substantial profits—to make no bones about it—to the British economy? Can he quantify the loss which is likely to accrue if the effect of this legislation is as forecast, or what evidence can he show that the loss will not be as forecast?
If the House of Commons has to pass legislation, it should do so in the knowledge of what the effects of the legislation will be. We may be able to assess the motives of those who bring it before us if we know that they are aware of the consequences of their actions. If they have taken a certain line of action without any knowledge of its consequences, it will lead us to one justifiable conclusion. If they know what is to happen and do not care about it, that will lead us to another justifiable conclusion, But, in this case, when we are talking about substantial sums of money, I do not think that we should make any bones about the fact that we are entitled to know whether this is being created as a situation to the disadvantage of this country by oversight or by deliberate and set purpose.
I speak on behalf of my constituent who has written to me and on behalf of 59 others. As the letter says, they stand in imminent danger of losing their jobs. Naturally, they regret that fact. Naturally, they regret that there will be other substantial losses of various kinds to the economy and to our society generally.
I do not make this plea on behalf of Mr. Getty. He has always been careful to play no part in the British political scene. So far as I know, he is not responsible for any of the Press notice which this possibility has already attracted. On 7th June the Daily Express carried a report in its William Hickey column which is not entirely accurate but clearly reflects upon the letter sent to "D. Healey,


Esq.". But if that is taken to suggest that Mr. Getty had any part in making this public, I must say that I have no knowledge that that is so, and I have not spoken to Mr. Getty on the subject.
My constituent and the many others who may find themselves in the position which he describes as a result of this legislation are entitled to expect a full and satisfactory explanation from the Chief Secretary whether he views this prospect with total equanimity or whether the representations which have been made since this proposal was first put forward have led him to change his mind about the desirability of the proposals in the Bill and whether at this late stage he cannot take some sensible remedial action which will enable the situation to continue whereby we have in our midst a number of people who have been welcomed for years, who have always been led to believe that the contribution which they made to our economy was appreciated, and which they could continue to make, and who are naturally astonished about what is being done.

7.45 p.m.

Mr. Nicholas Edwards: This debate has established two matters. The first, Mr. Murton, is the high esteem in which many right hon. and hon. Members hold you. The second is the extreme complexity of the subject that we have been discussing.
I agree with my hon. Friend the Member for St. Ives (Mr. Nott). Never has there been a more obvious subject for a Green Paper. It seems to me that in view of all the uncertainty that has been revealed and in view of the probable damage which has been spelt out, the Government would be well advised to take that course and to reconsider the whole matter.
I must declare an interest, in that I am a director of a merchant bank and of insurance broking companies in the City of London. For that reason, I am concerned about the possible consequences of the Bill upon the business conducted in the City.
The Chief Secretary suggested that few representations on this clause had been received and that many more had been directed to Clause 18, but we have been in some difficulty throughout this debate,

which is one reason why, on occasions, the rules of order have been a little stretched. We have been confined to a set of amendments, and we are now confined to a specific clause, when in reality there are three interrelated clauses which separately and collectively affect the foreign community working here.
Recently, Christians have celebrated Trinity Sunday, and preachers up and down the land have described that great mystery. In my own parish church, the curate, with his usual eloquence, produced a can of Three-in-One oil and described its interrelated properties. He could have pointed equally well to Clauses 14, 16 and 18 of the Bill. The Athanasian Creed, in language of complexity and incomprehensibility which rivals even the efforts of the parliamentary draftsmen, spells out the direst penalties for those who deviate a jot from its interpretation of the mystery. In the case of the Finance Bill, the penalties are reserved for foreigners who are misguided enough to work and dwell among us.
The difficulty that we are all in is that the combined consequences cannot be dealt with adequately in this debate. I speak only to emphasise the need to return to the matter again in greater detail in Standing Committee and to express the view that it would be much better if the Government reconsidered the abolition of the remittance basis and came back to the House only after presenting a Green Paper and allowing adequate time for the consequences to be considered.
The collective decisions of foreign firms will be taken because of the combined effects of this clause, dealing with individuals, of Clause 16, dealing with the income from trade carried on abroad, and of Clause 18, dealing with the taxation of worldwide income of persons resident here for comparatively long periods. In assessing their decisions, they will consider the costs in terms both of remunerating employees and of taxes paid on their organisations as organisations. They will think about the consequences on their staff as individuals and the impact on their employment policies. They will think of the relative benefits here and elsewhere and of the personal consequences for the proprietors. If, for one or all of those reasons, they concluded that they will be worse off in Britain


than in another country of relatively equal convenience, they will go elsewhere.
First, I will say a word about the position of individual employees in this country working away from their own countries. They usually accept some inconvenience. They are removed from their families and friends. They have obligations in their countries which they still have to maintain. Normally, their firms undertake to see that they are at least no worse off than if they stayed at home paying taxes at the local rates. Until now, they have done so in a variety of ways. I freely concede that some may be rather undesirable.
Whatever methods such employees have adopted in the past, they will have to reassess that cost, and many are already doing so. They are having to consider complex and, as yet, undecided matters. I am advised that one of them is the question whether fares to and from the place of work from the home country are taxable as income. Whatever figures the Chief Secretary may produce about relative rates of taxation, many of them are concluding that it is not worth it to stay here.
I am not so much concerned about some of the very large American banks which have taken the opportunity to cut down on expensive London office staff. I would be concerned if many of the foreign banks and consortium banks already here started to move their offices to Europe, but I am particularly concerned about many examples I have been given of the small or medium-sized non-European organisations which are now hesitating to set up here and which are, instead, considering places such as Brussels. These organisations already have to face the high cost of office accommodation in London, but they are inclined to come here because of the services which we can offer and because of the language factor. However, faced with what they regard as excessive taxes on their key executives, many have frankly and freely stated their intention of going instead to Brussels or elsewhere.
There are also many executives who come from abroad to work for companies resident here. Some come from parent or associated companies abroad and some come as individuals. They now face the double burden of higher taxes

under this Clause and, if they stay for long periods, as many do, the penal impositions of Clause 18. We have heard this week of the example of Professor Johnson.
I work for a banking group in which some outstanding men are posted here from an American associate, and many major British companies are receiving the services, skills and business acumen of top American, European or Canadian executives. I have in mind one or two of the best known shipbuilders, many firms engaged in North Sea exploration, as well as others. Nine years is not a long period, and it is ludicrous to drive away a top executive at what may be the most productive period of his career.
I speak with particular anxiety about the consequences for our immensely important invisible earnings. I make this remark with particular feeling on a day when a particularly disastrous batch of trade figures has been announced. I think that there are more non-British shipping related companies operating in the City of London than anywhere else in the world.
Let us take the Greek shipping community as an example. There are 150 Greek firms, some of which are full operating companies and some offices of convenience based in the City of London. Many came here a decade or so ago— for reasons which have already been mentioned in the course of our debates— from New York. Today, they are ready with their bags packed to depart to Brussels, Zurich or some other suitable capital. Many made this abundantly clear in the Poseidon gathering in Athens, where there was plain speaking on this subject. No Greek ship owner or any other overseas business man will sit in London and pay taxes on his world-wide income. It may be unreasonable that these gentlemen should escape British taxes, and I can see all kinds of arguments, on all the clauses, on grounds of equity, but the simple fact is that these people have complete freedom of choice, and if we impose taxes on them it will not benefit the revenue here; the people involved will simply go elsewhere.
At present, many of these people live here and educate their children here. They have got to know and like us. They do business with British banks, the British insurance market, and with the Baltic


Exchange, as well as use all the services which the City of London has to offer. If they are forced elsewhere, all this business is put at risk and in future many would prefer to deal with institutions outside this country.
The magazine Seatrade stated in its May edition:
Should a major proportion of foreigners decide to leave London, the financial service industries must follow. The British merchant banks the British shipbrokers, the insurance underwriters, the ship management companies, the equipment service officers, all will have to set up colonies abroad to service their clients. If they do, the non-national city will be that much more parochial.
The abolition of the remittance basis, which is the central theme of the debate, could, in my view, have a catastrophic consequence for many of these overseas organisations now established here, for a variety of reasons. Certainly for ship owners hitherto based in London, and domiciled here, who have operated established companies in other parts of the world, the United Kingdom will be the loser.
From all sides the story is the same. Cases have been referred to in the debate, and many of us have received representations from a wide variety of organisations. We have also seen copies of some of the representations made to the Chancellor of the Exchequer.
This set of proposals—this unholy trinity of clauses—may give a few doctrinaire Socialists the moral satisfaction of catching a few United Kingdom citizens who are taking advantage of the rules, but they will do incalculable harm to British business and the British economy and, in turn, to the living standards of the British people.
I ask the Government to lake the advice which my right hon. Friend the Member for Carshalton (Mr. Carr) gave earlier this afternoon and withdraw the whole package—the whole unholy trinity.

Dr. Glyn: The Chief Secretary said that he had to bring in legislation and, indeed, that any Government ought to bring in legislation—I believe that is what he meant—as a result of certain events such as Lonrho. Everyone would agree that in the circumstances some legislation was required, but I believe that the Government have entered into the matter far too hastily and have not con-

sidered the effects which the legislation will have on our future economy. These are my main criticisms.
Today, we have been dealing with a series of difficult amendments, and my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), one of the greatest experts on tax, has been arguing with the Chief Secretary. These amendments are extremely complicated and difficult to understand; indeed, as a layman I do not pretend to understand them. Yet one can see from the exchanges today, not only involving our own Front Bench but also amongst the back benchers, whether they be accountants or lawyers, that there is an element of doubt in these measures.
The debate has shown that the Government ought to have taken much longer to consider the matter, and ought to have brought out a Green Paper setting out the situation and sought views upon it.
We are not concerned with just a part of the Bill, but the amendments which we have been discussing are illustrative of the Government's attitude and have shown that the Government have not had a chance—I do not blame them for this —in the three months or the six months that they have been looking at the matter, or possibly longer, covering the period when they were in Opposition, to appreciate the effect which such proposals would have on our future economy, not only upon individuals, but on companies.
I would like the Chief Secretary to admit that the Government have made a mistake. There is no real necessity to introduce this particular attack on foreign earnings upon which this country is at present so dependent. We could easily have waited until the autumn Budget, if we are to have one, and the Government could then have brought forward measures perhaps not entirely acceptable but which, nevertheless, would have been much easier for us to accept and which would have been far less disastrous in their effects on the country at large.
This country has built up over a number of years a centre of invisible earnings and of banking, and if people are to be influenced by this new form of overseas taxation we shall find that there will be


one of three prospects materialising—a move out into Europe; a failure to attract new banks and money into this country; or a decision by everybody that it is no longer worth while having centers of business in this country. The last prospect worries me more than anything else.
Our foreign earnings are the heart of our economy. Before we seek to change the taxation system the Government should consider all these matters very carefully. I hope that the Chief Secretary has appreciated the points made to him.

8.0 p.m.

Mr. Peter Rees: During the Budget debate, many hon. Members congratulated the Chancellor on his stamina. Of course, stamina is a prime quality for any democratic politician, but perception is another necessary quality. This clause and the complex of clauses of which it forms part show a remarkable lack of perception by the Chancellor and his right hon. and hon. Friends.
The Chief Secretary had the temerity to say that they had received no representations, or very few, about the clause. He must live in a very cloistered world. Without any exertion—barely setting foot in the City—I have been overwhelmed by representations by all manner of people, both British people who work abroad and foreigners who have chosen to make their base in this country.
It may be that the existing system is not perfect. Very few taxation systems are perfect. As my hon. Friend the Member for St. Ives (Mr. Nott) perceptively remarked, a high rate tax system breathes through its loopholes. That is what Labour Members must appreciate. One cannot impose a high rate system without having some loopholes—otherwise, the pressures become too great and people will resort not to avoidance but to evasion. The Chief Secretary, as a former practising accountant, will appreciate the distinction.
I hope that the Chief Secretary will correct the widespread misconceptions in his party that, crudely speaking, by paying one's emoluments to the Cayman Islands, Jamaica or Monrovia, one can avoid United Kingdom tax. He knows that that kind of crude payment will not avoid tax. It is not at that kind of evasion that these clauses are aimed. But

of course, that kind of evasion will be generated if the clauses are enacted without substantial amendments.
The real question here is not how much tax this country has lost in the past, or how much it may collect in future. I agree with my hon. Friend the Member for Pembroke (Mr. Edwards), that very little tax will be gained. Those who up to now have made the United Kingdom their base of operations will go abroad. Thus, not only shall we lose that taxation, such as it is; we shall also lose those people's rates and everything else that they contribute to this country's welfare. Also, those who have remained here but traveled abroad for some months a year to do business overseas will move their bases. They will cease to be United Kingdom-resident or domiciled and will set themselves up abroad. I forecast with utter confidence that these clauses—in particular, Clauses 14 and 18—if enacted in their present form, will result in a net loss and not a net gain to this country.
But the real question is not a fine calculation of whether there will be more or less tax. The question is, do we want London to remain a great commercial and financial centre? Do we want to maintain, nourish and expand our commercial and financial outposts across the world? Do we want to encourage or discourage the enterprising members of our community who wish to go and do business abroad? Do we want them to go abroad, make their fortunes and come back, or go abroad and stay abroad?
This clause, combined with the other causes that we shall be debating, will have a profoundly damaging effect not only on the City but on the whole fabric of our economic life. It became apparent in our earlier debates that the Chief Secretary had not fully appreciated the finer points of these provisions. Who can blame him? He has been under great pressure since 28th February. I therefore hope that he will forgive me if I now draw attention not only to some of the finer points which have eluded him but to some of the greater ones.
Let us take the Eurodollar market. Its creation—as in the case of any market—depended on a combination of complex factors, but I should like to suggest two which are particularly relevant to our debate. First, there was the


interest equalisation tax, introduced in the States. I wonder whether the Chief Secretary has appreciated that President Nixon has just reduced the rate to zero. If he has noticed that fact, has he thought through the implications for the Eurodollar market in London and Europe?
A market like this and, if one likes, the stock market and the capital market depend on a concentration of skilled operators. What will the effect of these measures be on the Eurodollar market or the capital market? These operators, whether British, American, Liberian, Greek or Italian, have international skills that can be practiced and are marketable anywhere. If the burden of personal taxation heaped on them is more than they feel to be just, they will move their centre of operations.
As my hon. Friend the Member for Pembroke, who has such knowledge of these matters, has said, they can easily go, if not to Paris—the Chief Secretary's answer in this respect was highly suspect, because he ignored all sorts of factors which most businessmen would take into account—to Brussels, where the rates are lower, to Zurich or to Geneva. They might even go to Luxembourg. Is that really to the long-term advantage of this country?
I do not want to stray too far from the subject of this debate, but let us combine this measure with the doubling of the rate of stamp duty. This clause cannot be taken in isolation; one must consider the combined impact on people operating in this country. If one is an Arab with money to invest, it does not matter whether one rings up London or Zurich or whether one's stocks and shares are bought here or in Zurich. At least, it has not mattered up to now, but it will matter significantly. I should like the Chief Secretary to inquire from the officials in the Box what the comparable rates of stamp duty are. Let us have an answer on that.
I ask the Chief Secretary to take this argument seriously. If, so far, he has been deaf to the representations which have reached me and my hon. Friends, let him go to the City and have one of those tax account lunches which he and his hon. Friends are so worried about. I am sure that the City would be delighted to entertain him if they could get through to him and his colleagues just what their meas-

ures are likely to do to the City as a commercial centre. Let them stand him a good lunch.
I turn to what may appear to be a technical point which the right hon. Gentleman did not appear to have grasped when I put it to him in an earlier debate. Has he realised what is involved if the kind of person who is temporarily resident and doing a job here is to be taxed on the total emoluments paid to him by his firm? I come back to the question of share option and pension schemes, and the like. The right hon. Gentleman attempted to brush this aside, saying, "We shall of course be taxing only emoluments paid for services in this country."
Let him inquire from the Official Box —if he has any doubt—what would happen if the Chase Manhattan Bank—I take the name at random; I have not been in touch with it—wrote to one of its bright employees in New York, "Do your tour of duty in London. We shall pay you a salary and you will still get your entitlement under our pension and share option schemes. Year by year you will be able to buy more under the share option scheme." Under our tax laws those things will be treated as emoluments for services performed in London. Therefore, by the very test that the Chief Secretary applied, they will be taxable here.
First, the calculation will be enormously difficult and, second, it will impose an unwarrantable burden of tax on such a man. It is no consolation to him to be told, "Your United Kingdom counterpart is paying tax over there." His short answer will be, "More fool him. I am going back to New York, where they appreciate my services and I do not have to suffer tax at this kind of rate."
I have one tiny practical question. How, for instance, will the pension schemes of foreign companies employing people here be approved for tax purposes by the Revenue? The Revenue is overloaded as it is. Imagine every company employing people in London submitting its pension schemes for approval by the Revenue. This is a practical administrative point, which the Chief Secretary cannot ignore.
I ask the Committee to consider the realities. Those foreigners who work


here and who come from countries which have double taxation conventions with this country will play fair. They will have to, because most double taxation conventions contain provisions for an exchange of information by the revenue authorities of both countries. I take the United States as the most obvious example, but this could apply to any country which has a double taxation convention with the United Kingdom. Such people would have to play fair. Their firms will infallibly make them return the whole of their emoluments, whether paid in London, Cincinnati or Paris.
Let us take the case of an employee who comes from a country which has no double taxation convention with the United Kingdom. When asked by the inspector, "What is your company paying you?" he will return particulars of the emoluments paid to him in London. Does the Committee think that he will make a return of the emoluments paid to him in Monrovia, Beirut or Kuwait? He will not. There will be set up an unfair discrimination between those who have to play fair and those who need not. All the abuses which the Chief Secretary and his hon. and right hon. Friends have pilloried during the past year will be multiplied, and not reduced, by the provisions that he hopes to introduce.
In the time available the Chief Secretary has not thought through the implications of disturbing the existing system. One can only come back to the perceptive suggestions made by my hon. Friend the Member for St. Ives, who has a great deal of practical experience on both sides of the fence—both as a business man and in the Treasury. Why does the Chief Secretary not admit that this may be a slightly ill-thought-out measure? Why does he not withdraw it for further consideration? Let us have a Green Paper. We are to have one dealing with the wealth tax. This is equally important for the welfare of this country.
The matter of expenses cannot be confined to the debate on Schedule 2. Has the Chief Secretary considered how to give relief to a person who holds one directorship in this country and another in Buenos Aires? Will he obtain relief for his air fare, the cost of his hotel, and entertaining his suppliers there? This

point cannot be brushed aside by saying that he must be paid such gross emoluments as ensure that, after he has paid tax, he will be left with enough to cover all his expenses. At current rates of tax that is not realistic.
It is apparent that too many things have to be thought out with more care and greater leisure than lie at our disposal during the Committee stage of this Bill if it is to be passed by the middle of July.
It is a badly thought-out Bill. It was conceived in prejudice and produced in haste. If it is enacted in its present form the taxpayers of this country will repent at leisure.
I therefore welcome the robust pledge given by my right hon. Friend the Member for Carshalton (Mr. Carr). I hope that in the meantime, during the moments given to them, the Government Front Bench will do their best by listening to the arguments for the amendments which have been put forward, which are not party political amendments but are genuinely designed to rationalise and to humanise this provision.
I hope they will do their best to introduce at least a measure of sense into what is an extremely damaging complex of provisions.

8.15 p.m.

Mr. Nott: Sir Oscar—[Laughter.] You will understand my confusion, Mr. Murton, because you have been knighted so many times this afternoon during this Committee that I thought I had mused an important announcement.
I made my speech in the debate on Clause 14 on a very narrow amendment of my hon. Friend the Member for Scarborough (Mr. Shaw). Having now had time to study the amendment, I realise I was out of order. But what I said then holds good, for I was making a "Clause stand part" speech on the remittance basis as it affected residents of the United Kingdom. I do not wish to repeat what I said.
I now wish to have the opportunity in Committee of the whole House to speak about non-residents, because I am not a member of the Committee upstairs, for which many thanks, after seven years
I do not think the 50 per cent. rule for non-residents is particularly obnoxious. I take my hon. Friend's point. But I


have not heard a lot of complaint about it. The Government have not, I believe, received a large volume of protest about the 50 per cent. rule.
I have spoken to a number of American institutions, and what worries me more than the 50 per cent. rule is the moment at which the full United Kingdom marginal rates come into force after the 10-year period. I realise, however, that ninety-eight per cent. of the employees of overseas firms never work for as long as 10 years in the United Kingdom. The employees of the banks and the oil companies move around. Therefore, why one may ask, am I worrying about the 10-year rule?
It is because there are in the City of London and in areas where professional advice is very important an army of people who have spent more than 10 years here, non-residents of the United Kingdom, who may be experts in the shipping business or the Eurodollar market, and there are a great number of them who are not domiciled in the United Kingdom. I do not know if I am using the correct technical terms. I think I am making my position clear. The shipping business is to a great extent peopled by members of Greek citizenship, and they have been in London for more than 10 years. We do not want to lose the business of Lloyd's to New York. If one extends the 10 years to 20 years the problem is still there. I prefer the 50 per cent. rule to work its way right through for those people. This may not be inherently very satisfactory but it is practical. If one is going to leave them alone because one believes that, by tackling them, one will severely damage London's business, one then has the problem of what one does with British residents, because it is not fair to say "We are leaving all the non-residents alone or are only tackling them as to 50 per cent.", and then penalise the British person—he may be a British citizen resident in London conducting international business from the United Kingdom—who is competing with the American, the Greek or the Egyptian, who are paying no United Kingdom tax, or tax on only a 50 per cent. basis. It does not seem sensible.
If we heavily discriminate against our own nationals and tax them at the marginal rate of 75 per cent. and say that we are going to have the American, Egyptian or Greek living in London paying

no, or little, tax, that will not be fair. We do not want to discriminate against our nationals in that way.
Since I think that the 10-year rule is damaging to the country—I am talking of non-residents—I would not tackle the non-resident problem in this way. I know that it is rather unsatisfactory, but for good and wider reasons I would let them be. In that case, if I wanted to deal with the Lonhro situation, I would not do nothing. But I know that I could not end the remittance basis as proposed because if I ended it I should be heavily discriminating against British nationals. I hope that I am making myself clear.
I come to the view, for this reason, that we must not abolish the remittance basis. The Chief Secretary comes to the opposite view He says "I want to abolish the remittance basis. Therefore, I must be fair and tax non-residents." But I say that we should leave the nonresidents alone, because unless we do we shall be damaging the City, Lloyd's and the shipping business, and keep the remittance basis in a revised form. That s my judgment.
I repeat that if the Government leave non-residents alone they have to devise something else, something that is less severe for residents than what is proposed in the Bill. I have made alternative proposals which the hon. Gentleman has said he will look into. I am delighted with the commitment which the Opposition Front Bench has made. That commitment means everything, because Governments change.
I hope that the hon. Gentleman will look at the question of getting rid of the 10-year provision and keeping the figure at 50 per cent. for non-residents. This will involve thinking up something rather less harsh than what is proposed in Schedule 2 for residents. I suggest something totally different from ending the remittance basis. By all means let us deal with the tax haven problem, but not in the way proposed by the Government.
I apologise for a rather garbled unprepared speech, but I am trying to find ways to meet what is a genuine problem.

Mr. Norman Lament: I follow one point made by my hon. Friend the Member for St. Ives (Mr. Nott)—the apparent asymmetry between


the 50 per cent. deduction for nonresidents and the 10 per cent. deduction for United Kingdom residents in foreign emoluments when these people may be competing directly with each other in the provision of services.
It is perhaps surprising, given the latitude which the Chair has so generously allowed, that we have not concentrated more on the problems that arise in respect of United Kingdom residents, considering that the amendments have covered almost every provision dealing with foreign emoluments. In such circumstances, we might perhaps have expected to deal a little more with the problems of United Kingdom residents.
I agree with what my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) said—that in a country with high marginal rates of taxation the remittance basis in the past has acted as something of a safety valve. Whereas one might have expected the Government to modify the system, they have gone far towards eliminating special treatment altogether. The result is that many hardworking and hard-pressed executives will find themselves caught in the backwash of the Lonhro affair.
There are many activities carried out abroad which will now be much less attractive. For example, there is the case of the consultant engineer going abroad for short periods. I want to focus my remarks on the person who goes abroad for a short period—for less than the 329 days, which is 365 days less 36 days, which is allowed under the Bill.
It is often very difficult to persuade middle management to go abroad. It means that they have to separate from their families for quite a number of occasions in the year. It will be all the more difficult to persuade them to go abroad for over a year so that they will benefit from the provisions of this clause. It means prolonged separation from their families and often going to unglamorous and uncomfortable places, very often on extremely important business.
Another group who will be caught is the academics. The fear has been expressed that someone who has a post abroad specifically for the academic year may be caught severely under these pro-

visions because it looks at the moment as though an academic year would not qualify for the 365-day provision. The implication of the Bill at the moment seems to be that the work done abroad should be carried out over the period of 365 days. This matter is causing considerable concern.
While the Government have gaily gone on putting up the tax in this area, there is no indication in the Bill that additional allowance is to be made for the costs of working abroad. For example, the Englishman working in the United States could incur medical expenses which would be deductable for United States taxation but would not be deductible against his assessment in this country. At the same time, he would not get the benefit of the National Health Service. Likewise, an engineer going to a high-cost low-tax country may find himself at a considerable disadvantage in returning hospitality.
If the Government intend to maintain this asymmetry between the 50 per cent. for non-residents and the 10 per cent deduction for United Kingdom residents, I hope that they will look at the question of expenses which are deductible and allowed at the moment. This point has been mentioned by a gentleman who has already featured in this debate—Professor Harry Johnson. He made the point in his letter to the Director of the London School of Economics announcing his resignation. After referring to changes which have been made in the taxation system, he said:
Under the new tax proposals, and with the same main activities, I would still have to pay income taxes to the United States Government; and I would be able to deduct only a fraction of what I would have to pay the United Kingdom Government, both because United Kingdom marginal tax rates are so much higher and because British definitions of legitimate business expenses for academic workers exclude certain kinds of expenses that in the United States and elsewhere are accepted as necessary costs of membership in the academic community.
I think that this whole area of expenses will, in the light of these changes, have to be looked at. I do not think that the Government's way is a good way of trying to meet the point. One of the unfortunate consequences of moving more and more towards high taxation is that expenses that can be deducted and allowable become more and more important.
8.30 p.m.
If it is thought that the remittance basis has been the subject of abuse and that changes are necessary, surely the changes ought to be balanced much more carefully against the costs of providing services abroad.
I do not know whether the Chief Secretary, as a former accountant, still reads Accountancy Age. and whether he saw the article by Professor Prest about the effects of the taxes the hon. Gentleman is introducing. Professor Prest quoted a number of examples, including one of a consultant drawing a fee of £5,000; under the previous arrangements, after various expenses, he had an emolument, after tax, of £1,450; it is calculated that after the changes in this Bill that man will end up making a loss on his operation abroad.
One will have to look again at the whole matter of costs and expenses involved in providing services abroad. The Government seem to think that companies can simply pay executives rather more, but, first, it is very difficult and very expensive for companies to do that, and very difficult, with the high rates of marginal taxation, to do so in a way to make any difference at all. The effect of the 10 per cent. deduction will simply be to prevent movement into the higher income tax bracket, if that at all. So if change is necessary it ought to be balanced much more against both the costs and consequences.
The consequences for the United Kingdom's economy will be these. There will be an effect on outward investment. That may not be a very bad thing. I can understand people perhaps arguing that one wants to restrict outward investment, but this is a very rough and ready and arbitrary way of going about it. These provisions are bound to have an adverse effect on our balance of payments; services depend on costs, and they have to be price competitive, as any other goods have to be that one intends or tries to export. The third consequence is that these provisions in the Bill are likely to have a significant effect on tax morality in this country. We have a very efficient Inland Revenue in this country and the most compliant taxpayers in the world, but I am not sure that that is a situation which will go on for ever after this Bill.
The Chief Secretary has said that the ending of the remittance basis would be

regretted only by those directly affected by it. I do not think that everyone will take such a narrow, self-interested view. The ending of the basis in this way will be regretted by anyone who thinks about the consequences, and anybody who wants to avoid this country just retreating into its shell will regret that many commercial developments will pass us by.

[Mr. GURDEN in the Chair]

Mr. MacGregor: I should like to follow, briefly, the remarks by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) and my hon. Friend the Member for St. Ives (Mr. Nott). I think that I had managed to follow the logic of the arguments of my hon. Friend the Member for St. Ives, but it would be possible for many of these points to be considered on later clauses and on Schedule 2. The many amendments which we have proposed would, if accepted, go a long way to achieving what he has in mind irrespective of the arguments for or against the remittance basis.
I must declare that I have a comparatively short acquaintance with the international financial and commercial community. It has greatly aided me in these matters, but I have no axe to grind, and certainly no overseas earnings.
It is quite clear from what has been said that this is not a debate on party lines, because, to put it at its worst, many of the people about whom we are concerned have no votes in this country. What we are concerned about are the unnecessary effects, severe in some areas, on this country's economy.
It has also become clear that we are talking not just about this clause, but about all that is associated with it, because many of the worst effects of the Government's proposals will come from other clauses and the Schedule. However, this clause is the standard bearer of all those clauses, and it is the only one of them which we are considering in Committee of the whole House. In view of the enormous alarm and despondency which this set of clauses has created in many key areas of our financial and commercial life it is right that we should debate this one fully on the Floor of the Chamber.
I want to look at some of the evidence. I shall deal first with the question of foreign domiciles. A great deal has been


said about the effects on Americans. Many of us have received representations —I know the Government have—not only from the American Chamber of Commerce but from individuals. I quote from the "Fortnightly Newsletter for US Citizens Abroad", which said in early May that:
Officials in Belgium … are confident that in the near future—even within six months— swarms of foreigners now resident in England will switch residence to Belgium because of more generous tax incentives Belgium hopes to be able to offer. Some officials express certainty that they can induce more and more foreign corporations to set up headquarters in Belgium as a result of more liberal tax concessions to be offered them.
I do not know whether that is an accurate representation of the attitude being expressed in Brussels. The point is that it is being said—and fairly widely said—among the international community. It is such fears upon which people act. That same magazine conducted a straw poll of 41 per cent. of its readership in this country. It revealed that 69 per cent. were considering leaving as a result of the Finance Bill and 49 per cent. were considering a change of policy in relation to their United Kingdom headquarters.
This is an important feeling, and one of which we must take account. We have heard about the Greek shipping community in the City of London. There is certainly a widespread fear that many of these people will leave and thus put at risk a high degree of marine insurance broking and ship broking business held by Lloyd's and "the Baltic. I have seen evidence from a small number of brokers that at least £3 million of broking income could be at risk as a result of these changes.
We also know that many head-hunters are already busy among key American and European executives in this country, especially in view of the effects of Clause 18. Even journalists who have been here for some time are complaining about the effects of these measures.
It is vital that we realise that these people have a most important part to play. We must take their concern into account. Taxation is the crux. It is because of our high rates of tax that we need a more generous formula to help retain many of these people with foreign domiciles.
I agree that the worst effects will come through Clause 18 rather than this Clause. There are certain matters in Schedule 2, for those who are here for less than nine years, which could give rise to a good deal of concern. We shall have to look at this in Committee.
If we turn to the effects on the European headquarters of many international companies and consultancies we see that unless a more liberal attitude is taken towards them there is a risk of Brussels superseding London as a centre for many international companies. There is also a risk that there will be some decline in the influence of the City as a financial centre. Some management consultancies have written to The Times while others have written privately to the Chancellor, and others, pointing out that they are already giving advice to their clients to the effect that they should think carefully before they establish their European headquarters here or think about moving them.
As these consultancies have pointed out, the decision to locate a major corporate headquarters in London or elsewhere is often marginal. We have some advantages and some disadvantages. Unfavorable tax treatment could easily tip the balance. It is a sensitive area, in which confidence matters greatly. We can see this applying in some cases to American banks which are holding fire on decisions whether to locate their enlarged centers here or on the Continent.
So far we have tended to concentrate on the effect on the City. This subject goes well beyond that. There is the effect which will come about, through the influence of Clause 16, on partnerships trading abroad. When we consider the effect that it will have on individuals we are not just talking about directors or senior industrialists; we are talking about export managers who are away for four or five months a year, getting the export contracts. In their written evidence to many of us, these people, whether constituents or otherwise, have made it clear that they are greatly concerned about the effects of this measure.
I understand that in the past year at least one-third of the earnings of the Management Consultants' Association's members were achieved overseas. Much of those earnings are now at risk. We are


talking about professional people— consultants, engineers, accountants, bankers, and even pop stars. The question of the academics has been fully aired. All these people contribute substantially to our export drive and have a substantial beneficial effect on our balance of payments.
We are also talking about able, ambitious, mobile and, on the whole, well-paid people who are working in a market which is highly competitive and who--particularly the younger ones—are prepared to consider remaining permanently abroad. This year it is extremely difficult to recruit British graduates from American business schools because of fears of not only this but other aspects of the Finance Bill. When they are abroad they compete with much better-paid foreigners, in terms of net income. They must be able to keep up their standards and to look the others in the eye.
Here we must consider carefully the question of expenses. When one looks at tax rates one understands why. The Chief Secretary referred to a table which appeared in HANSARD on 12th June relating to foreign domiciles. The effect on British nationals is shown in a table produced by the Treasury on 9th April. Taking the countries with which we are most concerned competitively--Belgium, because of the position of Brussels, France, Germany and the United States —one sees not only that our earned income top rate is well in advance of that of any of the other countries but that the income rate at which it is payable is much lower. The graduated scales follow that pattern through. Often allowances and reliefs in the other countries are much more beneficial than ours.
One sees other weaknesses in this set of clauses in the transitional period. One sees the unfairness to groups of people who have already made their commitments and who suddenly have to face a higher tax bill in a short period. The Chancellor of the Exchequer has introduced the principle of a six-year transitional period for loan interest reliefs, and it would be unreasonable not to have a similar provision here.
Finally, I come to the cost. It is clear from questions that have already been asked and answered in the House that the cost is minimal. On any cost-benefit analysis, especially in relation to foreign domiciles, the balance is likely to come

out heavily on the wrong side, because of the loss of able individuals which one foresees, the loss to the balance of payments through headquarters moving elsewhere, the loss to the City of invisible earnings—it is notable that the Committee on Invisible Exports has been forceful in its evidence to the Chancellor on this question—and because there is no real political gain from these measures. We are using a steam-hammer to crack a nut, or to crack a basket of nuts only one of which is rotten.
It is right, in this debate on the clause, to give notice that we are greatly concerned about several aspects of this set of measures as dealt with in the later clauses, and that we shall be pressing for changes. I am glad that the Chief Secretary said that he would be prepared to look sympathetically at some of the amendments later, and I hope that he will accept them when they come.

Mr. Tim Renton: Like my hon. Friends the Members for Kingston-upon-Thames (Mr. Lamont) and Norfolk, South (Mr. MacGregor) I want first briefly to refer to Schedule 2, as it forms part of the unholy alliance of clauses which we have been considering for the past few hours. I declare an interest as a director of a British bank that does the greater part of its business in Australia and New Zealand but, unfortunately, I have no overseas earnings to declare.
When he was justifying the 365-day provision in Schedule 2, the Chief Secretary remarked that people normally go abroad with their wives and families for more than a year, and he therefore thought that the 365-day provision was reasonable. Surely, we are also concerned with people who go abroad to promote British exports and build multi-million-pound process plants, for example, in the chemical engineering industry, for British contractors. Those people go abroad without their wives and families for a period of between three and six months, often experiencing unpleasant climatic conditions in countries such as Saudi Arabia, Libya and part of Latin America. One of the few ways by which they can be persuaded to go is by offering them some financial incentive during the time they are away from their families. This is what happened in the past. Under Schedule 2 it will not happen in future.
I have received a copy of a letter sent to the Chancellor of the Exchequer by the Association of Chemical Engineering Contractors. It points out that about 75 per cent. of its work is overseas, connected with export orders, and that the key construction staff which its firms send to sites overseas are usually abroad for between three and 12 months—rarely for more than a year. To persuade staff to accept these assignments in remote parts of the world, and severe climatic conditions, firms have to offer them financial incentives and home leave every three months. The staff is also required to return to headquarters for consultations. All these factors make the new 36-day limit on time spent in the United Kingdom difficult, and mean that those companies and others will tend to lose design and engineering staff to foreign contractors who offer better tax terms in respect of time spent overseas.
Before the Chief Secretary goes ahead with Schedule 2, I suggest that he should look at the tax benefits given to overseas earnings by countries such as France, Holland and Germany, which are our competitors in exports. He must take care that by hitting these design, supervisory and management staff when they go abroad we do not just make it that much easier for engineering competitors from other industrialised countries to win export orders in the developing countries. I hope that the Chief Secretary will consider this point when the Bill goes upstairs.
I turn to Case II and the revision of Schedule E. This is a matter of considerable interest to me because for many years I worked with a British-based mining company which had a great deal of international business. In that company we made it a matter of policy to bring foreigners to Britain from overseas companies not only so that we could benefit from a study of their Australian accents or the foreign languages which we could learn from them, but also so that they could contribute to the development of policy and management by their different approach to problems. Many British companies benefit from a conscious policy of bringing in foreigners and thus injecting new thought into management and policy-development groups in the United Kingdom.
I should like to deal, under Schedule E, with the question of the overall level of tax on world earnings. I agree with the comments made by my hon. Friend the Member for St. Ives (Mr. Nott). I have no great objection to the 50 per cent. rule, which is not all that invidious, but I believe that it is wrong that it should stop suddenly at the end of 10 years. At the end of 10 years people have been in Britain for a long time, but it is often at that time that they contribute most to the company employing them. It must be wrong to drive them away at that point in time by removing tax benefits which they have enjoyed. I suggest that the Chief Secretary should consider rolling on this 50 per cent. treatment of their world earnings so long as they remain in this country.
Finally, I should like to move on to a point on which we have all been muddled in the last hour or two. This relates to whether foreigners who work for British companies are in future to be treated in the same way, as regards United Kingdom earnings, as are foreigners working for non-resident companies. I understood the Chief Secretary to say earlier, in answer to an intervention of mine, that in future foreigners working for British companies would be treated in exactly the same way, in relation to their United Kingdom earnings, as are foreigners working for non-resident companies. If that is so, I welcome it, because it is right and it has not been the case up to now. It clearly should be the practice, because it is quite wrong that in attracting expert foreigners here for some specific skill or technology they possess British companies should be put at a disadvantage compared to non-resident companies.
North Sea exploration is an example. Most people with North Sea technology are North American. They will have to be recruited to come here, and that recruitment is now going on. Considerable numbers of these people are being taken on to help us develop North Sea oil and gas fields as quickly as possible. We shall need them increasingly over the years ahead. They are drillers—men able to operate drilling rigs—deep-sea divers and wire line experts. It would be a great pity if foreign oil companies operating in the North Sea were able to entice these people to British shores more easily


than the British companies simply because they were able to offer them better tax treatment. I hope that the Chief Secretary will confirm that the interpretation he gave earlier is the right one and that in future British companies will not be at this disadvantage.
Many of my hon. Friends have dwelt on the disadvantages to the City of Clause 19, and I shall not proceed further on that subject. I merely remind the Chief Secretary that the Paymaster-General, in an answer to a Question put down by me about the cost to our invisible earnings of his proposals to tax the worldwide earnings of foreigners working in the United Kingdom said:
I recognise the need for careful consideration of the proposals affecting foreigners in Britain and have indicated my intention to judge the issues raised on their individual merits."—[OFFICIAL REPORT 8th May 1974: Vol 873, c. 191.]
I hope that he will show us tonight and later in Standing Committee that these are not just fine words but that the Government will back them up with action.

Mr. Christopher Tugendhat: I apologise for intervening now in the debate without having attended any of the earlier proceedings on the clause. One of the disadvantages of the House of Commons is that so many things are taking place simultaneously, and I am deeply engaged in the Standing Committee on the Trade Union and Labour Relations Bill, which is sitting in the afternoons as well as in the mornings. I had therefore intended that this would be the first Finance Bill since I entered the House in which I would not be intervening or playing a part. I shall delay the Committee only for one moment.
The provision of the clause particularly affect the City of London, which is in my constituency. They also particularly affect the City of Westminster, which is in the other half of the constituency. Since a great many, if not the vast majority, of the largest British and overseas firms with headquarters in this country have them in the city of Westminster if they do not have them in the City of London, I have had some opportunity to study first-hand the concern not only of the financial community but of the industrial community, both British and

foreign-owned, in this country. In addition, I have an interest to declare since I am a director of an American-owned oil company, the headquarters of which are, like so many other companies, in my constituency.
In my opinion, the concern that has been voiced by the many companies which have written to me and to some members of the Committee is genuine. There has, of course, been some degree of abuse both by private individuals and by companies. I recognise that some of the abuse has taken place under the auspices of quite distinguished names both of individuals and of companies and that practices have been allowed to flourish which should not have been allowed to continue. I am confident that if the Conservative Party had won the last General Election some action would have been taken to put an end to those abuses.
It is no part of my case to argue that abuses do not exist or that they should not be acted against. However, as my hon. Friend the Member for Norfolk, South (Mr. MacGregor) has said, the Government are taking a sledgehammer to crack a nut. There is a great danger that by over-reacting to some of the problems that have gained publicity and to some that have not serious damage will be done to the whole fabric of the business community in the City of London and at the other end of my constituency, in Westminster. I hope that the Treasury Bench will take it from me, as the hon. Member for the City of London and Westminster, South, that the worries expressed by my hon. Friends are valid and that they should be taken into account.
Something was said a short time ago about the 10-year rule. I saw the Financial Secretary nod when it was said that if someone had been here for 10 years he had been here for a long time. In that sense he was right to nod. I bring out this point because I believe it illustrates the sort of mistake which the Government can make. It is sometimes suggested that someone who has been here for 10 years must be counted as part of the scenery and treated as if he was indigenous and that it cannot be said that it was necessary that he need have been here for so long. It is said that the great companies could produce other people who would be able to do the job


just as well. However, it is often the case that a large banking enterprise or an oil company, for example, may have an important link man who may well be here for a long time and in a sense is irreplaceable because he has been here for a long time.
It is practical considerations of that sort, and not some of the more theoretical considerations which I fear may motivate the Treasury Bench that I hope will be taken into account. I must apologise to the Committee for intervening at this stage, not having taken part in the earlier debate. I know how irritating such interventions are to hon. Members. However, this is a matter of enormous concern to my constituency and, through my constituency, of enormous concern to the country. I could not allow the debate to pass without impressing upon the Treasury that I believe from my vantage point that the concern expressed by my right hon. and hon. Friends is genuine and that it should be taken into account.

Mr. J. Bruee-Gardyne: Like my hon. Friend the Member for the City of London and Westminster, South (Mr. Tugendhat), I must apologise to the Committee for intervening at this late stage in the debate. I shall be very brief.
I have mixed feelings about the clause. It has never seemed entirely logical that a foreigner who has been resident in this country for many years and is using this country's facilities and services should benefit from a different tax regime or that he should be obliged to pay tax to a country in which he has not lived for many years and whose services he does not use. The other side of the argument is that without any doubt, as my right hon. and hon. Friends have pointed out time and time again, the enactment of this clause will do a great deal of harm to our invisible earnings and, therefore, to our balance of payments. If that is the sort of thing that the Treasury Ministers want to do against the background of our present trade returns, they need their heads examined.
The conclusion I draw is that this is the inevitable consequence of our having a fiscal system that is uniquely vicious against those with higher incomes. The answer to the problem is to bring this country more nearly into line with the

tax regimes prevailing in other countries which do not suffer from the jaundiced, green-eyed attitude to fiscal policy in the Labour Party. So long as we have these distinctions, the dilemma presented by the clause will face us.

9.0 p.m.

Mr. Joel Barnett: This has been an interesting debate. I am obliged to the hon. Members who have invited me to lunch in the City to learn what the City is saying about the matters we are considering. I have already listened to the City, and I have an idea what it is saying.
I hope, Mr. Gurden that you will not mind if I stick to the clause. Many hon. Members have acknowledged that their main fears stem not from the clause but to some extent from Schedule 2 and to a greater extent from Clause 18. Indeed, the hon. Member for St. Ives (Mr. Nott) said that in his view a 50 per cent. tax in the circumstances of the clause was not obnoxious, and the hon. Member for Mid-Sussex (Mr. Renton) agreed with him. That is the point that we are debating.
The hon. Member for Norfolk, South (Mr. MacGregor) talked about a straw poll, saying that a large percentage of Americans indicated in the US Newsletter that they were thinking of leaving. But it cannot be because of the clause. There is a considerable misunderstanding amongst Americans and many other foreigners about its effect.

Mr. MacGregor: I agree with what the Chief Secretary has said. I think that the American Chamber of Commerce and many Americans would accept the clause as it stands, but the fears still exist over the whole package. We must debate that matter later.

Mr. Barnett: I shall be happy to do so, but we are now debating Clause 14. The fears are based on a misunderstanding. Those concerned have little reason for those fears.
When we were debating the amendments I referred to the prospects for foreigners who decided that they would rather work abroad for a period of less than 9 or 10 years than work here. I recalled that in an answer to a Written Question I had indicated on 12th June, in c. 562 of HANSARD, that, with a 50 per cent. tax


level here, the net-of-tax return is still better here than in all other countries. One hon. Gentleman said that it was likely to be better in Belgium, because the Belgians are thinking of changing their tax laws. But I am advised that under the present Belgian law it is better from a lax point of view—and, if I may say so, from many other points of view—to be in London instead of Brussels.
It was said in our earlier debates that it is easier to avoid the tax in France. I replied that it is possible to avoid taxes in any country. I do not believe that we should be considering the matter from that point of view. We must look at the tax systems as they exist, and on the 50 per cent. basis that we propose people would be better off here net of tax than in those other countries. That, therefore, is the main burden of the argument.
I appreciate the problem that it is difficult to look at this matter in isolation. That is true. It is difficult to look at the clause in isolation, but it is equally difficult, with our rules of order, to talk about every other clause in the Bill or even four or five of them. On the other hand, although it is difficult, it is fair to say—indeed, the hon. Member for St. Ives and the hon. Member for Mid-Sussex said so—that the 50 per cent. basis can be taken on its own, separate from what we are proposing under Clause 18. It is possible to look at the way that we are proposing, under Clause 14, to tax those non-United Kingdom citizens who work here, when they work here for less than 9 or 10 years, on 50 per cent. of their earnings here. That is not really an obnoxious point of view.
On the other points that have been made about Clause 18 and Schedule 2, as I said earlier I recognise and am well aware of many of the problems that have been raised by hon. Members. I indicated previously that I was more than willing to look at Clause 18 and Schedule 2 when we reached them, but I find it hard to deal with them in detail as at this moment.
Reverting to Clause 14, concerning the British resident who works abroad for less than 12 months—it will be appreciated that if he works abroad for more than 12 months, he will, as before, not be paying United Kingdom tax—as it stands under Schedule 2 90 per cent. of his earnings would be taxed. I am prepared

to look at that schedule when we reach it in Standing Committee. But the reason for this must be understood. One hon. Member said that this section was conceived in spite. That is not really true —or, if it is true, it was conceived by the previous Government. In this instance, I suggest that that was the reason that they set out on this path. They did so for the very good reason, after the Lonrho affair, that they recognised, as the Treasury did before, I am sure—as the hon. Member for Worthing (Mr. Higgins) has admitted—that the remittance basis of tax had been enormously abused and it was possible perfectly legally to use that remittance basis to pay very little tax here.
One hon. Member said that we might, for example, have a situation in which we should find an exodus of pop stars. The only reason why that would happen would be that they had not been paying tax here and did not like the idea of paying tax under the clause. I do not know whether we should prepare our legislation on that basis, but I do not think so. That is why I cannot agree with many of the hon. Members who have spoken in the debate.
At this point, however, I should like to deal with some of the rather more technical points that have been raised. I come first to the question of share options. On the questions of "domicile", "resident", "ordinarily resident" and so on, as the hon. and learned Member for Dover and Deal (Mr. Rees) will realise, this is a very complex area. I hope that the hon. and learned Member will forgive me if I give him the facts as they have been given to me. I shall read them.
The position about stock options and foreign emoluments is as follows. If, for example, an American who comes here to work for the United Kingdom branch of an American corporation were granted a stock option before he took up duty in the United Kingdom, there would be no United Kingdom tax liability on any gain from his exercise of the option. If the option is granted while he is resident and ordinarily resident and working here— that is, he is within Case I of Schedule E —he will be taxable on one-half of the gain from this exercise if exercised while he is still resident here. If exercised after he has ceased to be resident here, the gain would not be taxable. Thus, generally


speaking, gains from the exercise of options will be taxable here only where the option was both granted and exercised here. This is surely fair, given that stock options are a form of remuneration.
I hope that that explanation indicates some of the complexities of the tax both as it has been and as it will be.

Mr. Nott: I ask a question which I know the Chief Secretary will not be able to answer. We do not want to place the person who happens to be an American citizen in a worse position than the British person working for an American corporation. As I understand it, if he was a British resident working for an American oil company and he was to receive an option on Standard Oil of New Jersey, if it still exists, and then was to go abroad and was to exercise it while working abroad for Standard Oil of New Jersey, he would be taxable when he exercised it as if it was income. But it may be that I have it wrong. In any event I do not expect an answer now.

Mr. Barnett: I think that the hon. Gentleman has got it wrong. I will drop him a note about it.
I turn to another matter raised by the hon. Member for Mid-Sussex. A foreigner coming here to work for a United Kingdom company is liable to United Kingdom tax on the whole of his United Kingdom earnings under Case II. The position is exactly the same as it was. Clause 14 does not affect it.

Mr. Tim Renton: I accept that it is exactly the same as at present, but that is the opposite of what the Chief Secretary told us about two hours ago.

Mr. Barnett: If I did, I apologise. In view of the complexity of the clause, I hope that I shall be forgiven.

Mr. Peter Rees: Before the Chief Secretary leaves this complex area, what about the employee of a foreign company who comes to work here and is a member of that foreign company's pension scheme?

Mr. Barnett: I think I am right in saying that we shall be coming to pension schemes on Schedule 2—but I do not hold fast to that, either. I will look into it.
I hope that I have dealt adequately with Clause 14. I am sorry if I have not dealt with Clause 18 and with Schedule 2, and I hope that I shall be forgiven if I do not deal with the Eurodollar market and the interest equalisation tax in the United States. Both matters may be in order, but they seem to be a little outside Clause 14, and we can deal with them later. At the moment, there are other matters to discuss.
Several hon. Members have referred to the need for a Green Paper. That need could only be said to apply to other clauses. Certainly it could not apply to Clause 14. For reasons which I tried to give in earlier debates on amendments, I suggest that if we had a Green Paper on an area as complex as this, all that would happen is that when we came to the Bill itself we should be little better of.
The hon. Member for St. Ives conceded fairly that the 50 per cent. basis in Clause 14 was reasonable. He could not see that it was obnoxious, anyway. Like other hon. Members, he was not happy about the abolition of the remittance basis. But hon. Members will recognise at the same time that there was a serious avoidance problem—indeed, an abuse— whereby British taxpayers were avoiding tax on a grand scale. They recognise that.
The hon. Member for St. Ives put a number of propositions, all of which were very complicated, about how one might perhaps deal with the matter other than through the abolition of the remittance basis, and I promised to look at them. But all I can say now that is that if we want to stop the major abuses, which have been recognised by both sides of the Committee, the only practical way to do this in such a complex area is to abolish the remittance basis, and thus we have decided to go ahead with that proposal. But Clause 14 is a separate matter and relates to a much narrower point which I hope will now be acceptable to the Committee.

9.15 p.m.

Mr. Maurice Macmillan: As has been made clear by my hon. Friends who have taken part in the debate, a number of representations have been received by hon. Members and, indeed, probably by the Government, from many people in industry, in the City, and in the teaching


and acting professions, and from journalists. They have all been concerned not so much that their interests are damaged by this legislation, by Clause 14, but that in order for their interests not to be damaged beyond endurance they may have to take steps to arrange their lives differently, in a way which will damage this country and our economic position and perhaps, in particular, our overseas and invisible earnings, as well as our standing as a financial centre and market. In the past other financial centers have to their disadvantage lost their standing partly through tax legislation and fiscal systems which have discouraged people from remaining in those centers and have encouraged them to come here.
In reading a large number of letters from various people I was struck at the high proportion who were concerned not about themselves but about the country. A large proportion of letters came from, or were about, people who could avoid these proposals quite simply, without any breach of the law or the need to engage expert accountants, simply by going away.
My hon. Friend the Member for Pembroke (Mr. Edwards) referred to the Euthanasia Creed, in a somewhat theological line. I rather hoped that the Chief Secretary was going to quote Browning at him and use that great phrase:
I the Trinity illustrate, 
Drinking watered orange-pulp—
In three sips the Arian frustrate;
While he drains his at one gulp.
The complaint from this side of the Committee is that the Chief Secretary and the Government have insisted on taking this matter at one gulp and have tried to justify it partly by the charm and humour with which the Chief Secretary has replied. But he must not be allowed to get away with phoney arguments simply because he is nice to the Committee. That attitude does not justify his argument.
It has been claimed that it would be too complicated to have a Green Paper on the matter. My hon. Friend the Member for St. Ives (Mr. Nott) said that he was not worried about the 50 per cent., but he was concerned that this was a case of seeing a fly on a marble table and that the Chief Secretary had decided to kill the fly, regardless of the effect that his action would have to destroy the table. My hon. Friend suggested that there were perhaps other ways of

tackling the matter and that it would not be necessary to go as far as abolishing the remittance basis altogether.
The Chief Secretary's reply was that he did not think so, that it was too complicated to go into here and that a Green Paper would be so complicated no one could understand it. It is a thin argument that one cannot explain something because it is too complicated. As my hon. Friends have said, if it is as complicated as that, it will be impracticable to work and will put an intolerable strain on the Inland Revenue.
Of course it is necessary to prevent abuses. Many years ago I pointed out in a debate on anti-avoidance legislation that the net spread by the Inland Revenue invariably caught the sprats while the sharks broke through. My hon. Friends have shown that many innocent sprats will be damaged by these provisions. There have been references to the fiscal effect and to what one might call "tax morality". Much of the problem comes from high tax rates and the fact that a system virtually without loopholes is likely to lead not to less but to more avoidance and to evasion.
But we are complaining about something more. It has been said that the Chief Secretary made no attempt to quantify the effect of these clauses on the economy. We are seeing here the not unusual spectacle—this is not a party point—of fiscal purity as set out by the Inland Revenue overcoming common sense and economic good sense. Many things should be done if one stuck strictly to the rule book but they would tend to have an adverse economic effect.
The fact that my hon. Friend the Member for the City of London and Westminster, South (Mr. Tugendhat) felt moved to put his views with studied moderation, outlining the seriousness with which his constituents, who are largely those whose employees and organisations will be affected, regard the issue, should be taken seriously. My hon. Friend was worried about the 10-year period and the practical considerations. Many people are resident in more than one place over the whole of their working lives; this is particularly true of the shipping industry. I know more than one person who is what one might call Anglo-Greek and spends six months in


one country and six months in another. Now they will not, nor will their businesses. That seems a severe loss to our invisible exports.
The Chief Secretary said that it is not really Clause 14 that is causing the trouble. I agree that that is not the main fear, but it is a part of it. I cannot let him get away with the argument as each part of the Bill is discussed that it is tolerable by itself. We know that they are all part of a whole which is totally insupportable. It is dangerous to accept this 50 per cent. rate for foreigners without argument or protest. It is part of a wider complex of measures which themselves may be no more damaging than Clause 14 but are nevertheless all part of one whole.
As regards United Kingdom residents, the Chief Secretary said that the major abuse of the remittance basis could not be allowed to continue. I agree. He implied that any major abuse depends on the existence of tax havens. I am more concerned about those who now go overseas—not necessarily for long periods but for short irregular periods—doing difficult sales jobs, frequently in unpleasant parts of the world, who are separated from their families and have had up to now some form of minor compensation provision in their tax agreement. That is not a serious tax avoidance but forms part of the incentive which we are now losing. That is what I meant by referring to the dangers of posing too purist an argument from the point of view of the integrity of the tax. We are damaging those we need to encourage and those who it is difficult enough already to get to do what is frequently an awkward job personally and one which sometimes is physically unpleasant. That is why we are having this debate.
My hon. Friend the Member for Pembroke made it clear that Clauses 14, 16 and 18 hang together. My right hon. Friend the Member for Carshalton (Mr. Carr) indicated that we would do everything possible in the course of the Committee and Report stages of this Bill to improve these clauses, and the schedules that go with them, as we see they should be improved. He made it clear that that did not imply that we accepted that this method was the right way of dealing with any abuse of the remittance basis as it

now is. He gave a firm undertaking that in due course he would consider this afresh, without prejudice, from the arguments we have put forward in detail during the passage of this Bill. I gladly repeat that undertaking.
In the light of this, and the possibilities of amending Clause 14 and Schedule 2, I would not advise my hon. Friends to divide the Committee on this clause but end by expressing our dissatisfaction with the complexity of clauses dealing with this intricate matter and the use the Chief Secretary has made of this complexity to charm the Committee with his expertise rather than answer the points put to him.

Question put, and agreed to.

Clause 14, as amended, ordered to stand part of the Bill.

Clause 19

SUB-CONTRACTORS IN CONSTRUCTION INDUSTRY

9.30 p.m.

Mr. Michael Shaw: I beg to move Amendment No. 38, in page 15, line 42, at end add—
'(5) In section 29(4) of the Finance Act 1971 leave out "30" and insert "33"'.
Clause 19 makes various amendments to the Finance Act 1971, particularly in respect of those sections dealing with what is known in the construction industry as "the lump". In view of the tremendous interest which has always been evinced from hon. Members opposite on the question of "the lump", I am sorry that more hon. Members are not here to discuss it this evening. In making the amendments to that legislation in 1971 nothing seems to have been done about Section 29. Perhaps I may give a summary of what is intended.
It was realised that there were gangs of men in the construction industry who received sums of money for their efforts from the main contractor and failed to pay any tax on their remuneration. It was felt, rightly, that that system should be brought to an end. Therefore, it was made clear in Section 29(4) of the Finance Act 1971 that, on making a payment to such a gang, the main contractor
shall deduct from it a sum equal to 30 per cent. … and the sum so deducted shall be paid to the Board of Inland Revenue and


shall be treated for the purposes of income tax
and so on. In other words, a deduction was made at the rate of 30 per cent. That was handed to the Inland Revenue and was treated as a payment of tax by the members of "the lump".
This year, the Bill seeks to increase the basic rate of tax from 30 per cent. to 33 per cent. I am averse to being called upon to pay 33 per cent. as my basic ate of tax when, as far as I can tell, the members of the various "lumps" throughout the country may well get away with 30 per cent. I may be wrong. Perhaps I have not read the various provisions properly. My amendment is designed to explore whether my reasoning is correct.

9.30 p.m.

Mr. Bruce-Gardyne: I am not sure whether I support my hon. Friend the Member for Scarborough (Mr. Shaw). I confess that I am a little concerned about the impact that the Government may have if they succeed in their purpose of eliminating the tax advantages of "the lump". Of course, the amendment is designed to ensure that the members of "the lump" pay the same standard rate of tax as the rest of us—an entirely proper proposition. I shall explain my anxiety.
First, however, I agree that, considering the excitement generated in the Labour Party on the subject of "the lump", it is remarkable that so few Labour Members are present to listen to the debate. I have never believed that what caused the excitement in the Labour Party was the fact that "the lump" was escaping the tax net. What is much more serious in the eyes of the Labour Party is that the members of "the lump" tend to escape the trade union net. To escape the tax net is venal, but to escape the trade union net is an unforgivable sin — so it is surprising that not more Labour Members are present to take part in the debate.
My anxiety concerns the impact which I believe the Government will have—if they succeed, through this clause, in eliminating the tax or non-tax position of "the lump"—on the prospects of fulfilling our expectations from North Sea oil. This may seem a remote proposition to the Financial Secretary but in reality it is not remote at all. Last week, I visited

a number of the offshore oil installations off the east coast of Scotland. Time and again I found that the constructors operating on this plant were depending on "the lump" for any sort of labour force at all, because such is the rate of taxation which people working on those sites find they are facing that unless they can take advantage of "the lump" they are not prepared to work a five-day week or even a three-day week.

Mr. F. A. Burden: My hon. Friend is adopting a very dangerous attitude. If the trade unions find that "the lump" is to be allowed to be free of tax, what is to stop the trade unions from demanding that all wages of their members shall also be free of tax?

Mr. Bruce-Gardyne: If my hon. Friend will allow me I shall come to that point, as I was about to do. Of course, I do not defend the special tax regime which members of "the lump" have enjoyed. What I am saying is that so long as we have the sort of level of taxation on the earnings which people can earn in the construction industry on work of this kind —which is designated as a work of national importance—we shall not get the work done.
Of course, one solution is to lower the rate of taxation. The crux of the matter was very well exposed in an extremely interesting answer which the Financial Secretary gave the other day to his hon. Friend the Member for Was all, South (Mr. George). His hon. Friend asked if he would list the tax thresholds for a single person, a married childless couple, a married couple with two children under 11 with four children, two over and two under 11, for each year since 1945. The reply was fascinating, because it demonstrated that in the period up to 1955-1956 the tax threshold was at or above the average earnings level for such a family. Since then it has gone down and down and down, and today it is down to 52.4 per cent. of average earnings.
The consequence is that men on these construction sites for North Sea oil— who, the Financial Secretary may or may not be aware, have very high earnings— may find, if they are caught in this tax net, that they are paying very substantial sums in taxation to which they are not used. That is something they do not


accept. The idea that resistance to the tax net is confined to the wealthy is an illusion indulged in only by hon. Gentlemen, like the Financial Secretary, who do not visit these installations and see what is happening. At one installation I saw the labour force had to be doubled to meet the requirements. That was because of the scale of absenteeism— again, because of the tax regime imposed on people with take-home pay of £60 a week.
This is a serious problem. These construction firms have been relying to a considerable extent upon "the lump". I fully recognise, from the tax point of view, the objections to "the lump", but if it is removed the work will not be done.
Tonight the Financial Secretary should reflect on the fact that the Chancellor of the Exchequer is going round the capitals of Europe hypothecating our future North Sea revenues as security for foreign borrowing to sustain the balance of payments. If, now, through Clause 19, we succeed in destroying "the lump", the Chancellor may find that the North Sea oil which he is hypothecating away does not come on stream in time—or not on the scale he expects by 1980.
Of course, the right answer—the only sensible answer—to this problem is to bring down the taxation on average earnings and above, so that these people do not lose the incentive to give of their best to develop those natural resources, but so long as we do not do that, and if Clause 19 is successful in its operation, I have no doubt at all that there will be a significant effect in delaying the arrival of the resources of North Sea oil on which the Government are counting so much.

The Financial Secretary to the Treasury (Dr. John Gilbert): We have had two rather contradictory contributions from the hon. Members for Scarborough (Mr. Shaw) and South Angus (Mr. Bruce-Gardyne). It seemed that the hon. Member for South Angus was failing to distinguish between "the lump" as such and tax abuses that have been connected with "the lump". We are talking about attacking the tax abuses rather than the principle of "the lump". There is nothing in the clause which makes it impossible for "the lump" system of payment

to be continued in a perfectly reasonable way over a large part of the construction industry.
It is always a pleasure to follow the hon. Member for Scarborough in any debate. He was good enough to say that he might have been under a misapprehension as to why we were not changing the tax deduction of "the lump" to bring it into line with the basic rate of tax. I think there is possibly a misapprehension here. When the 30 per cent. deduction rate was first introduced we were not on the unified tax system. The 30 per cent. rate was only a close approximation to the basic rate. There is nothing that necessarily binds the two rates together, either in theory or in practice.
I can relieve the hon. Gentleman's mind of the anxiety that he or any basic rate taxpayer would be having tax deducted at 30 per cent.—33 per cent. under the Bill—whereas the man on "the lump" would be getting away with something less. The deduction for the purposes of "the lump" is taken without any allowance for personal reliefs or expenses of any sort. It is an immediate deduction from the top slice without any allowances whatever. The two are not on all fours.
In our view, to adjust from 30 per cent. to 33 per cent. would make for considerable administrative difficulties. As I am sure the hon. Gentleman, who has great experience in these matters, will recognise, the Revenue is dependent to a large degree on contractors to operate the scheme for it. It is anxious to keep their good will. These calculations are often made in difficult and inconvenient physical conditions on site, and it would not be in the interests of good administration or co-operation between the Revenue and the main body of the construction industry to change from the now quite familiar 30 per cent. to the relatively awkward fraction of 33 per cent.

Mr. Michael Shaw: I thank the Minister for that reply. It had not escaped my notice that Section 29 came into force in 1972–73 and the basic rate of 30 per cent. came into force in 1973–74. I felt it was clearly envisaged that the basic rate would be 30 per cent. and, therefore, this rate had been included in the 1971 Act. I felt it was worth having a word on this to show quite clearly that these


two would not be completely linked in future. I fully accept that there may well be problems if the attempt were made to link them. Accordingly, I beg to task leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.

New Clause 1

AMENDMENT OF SECTION 343 OF INCOME AND CORPORATION TAXES ACT 1970 TO ALLOW PENSION FUNDS TO INVEST IN BUILDING SOCIETIES AND RECLAIM INCOME TAX.

Where any arrangements under section 343 of the Income and Corporation Taxes Act 1970 are in force in the case of any building society, as respects any year of assessment, income tax shall be deducted from, and repayment of income tax shall be made in respect of, dividends or interest payable in that year in respect of shares in or deposits with or loans to that building society by Pension Funds.—[Mr. William Clark.]

Brought up, and read the First time.

9.45 p.m.

Mr. William Clark: I beg to move, That the clause be read a Second time.

The Temporary Chairman: It will be convenient to discuss also new Clause 2

—Consequential amendments:
The enactment specified in the following table shall have effect with the amendments there specified, being amendments adapting and supplementing those enactments in consequences of the provisions of this Part of this Act.

Orders of the Day — TABLE

Income and Corporation Taxes Act 1970

1. In section 343(1), after paragraph (a) there shall be added: —
(aa) on any sums as may be determined the society is not liable to account for and pay an amount representing income tax;
and
2. In section 343(3), in paragraph (a) after the words" notwithstanding anything in Part II of this Act" there shall be added the words "but subject to paragraph (v) of the proviso below".
3. In section 343(3), in paragraph (6) for the words "subject to paragraph (i) of the proviso below "there shall be substituted the words" subject to paragraphs (i) and (v) of the proviso below".

4. In section 343(3), there shall be added at the end:
and (v) the provisions of this subsection shall not apply to dividends or interest payable, in respect of shares in or deposits with or loans to a society, to Pension Funds" '.

Mr. Clark: I am not necessarily wedded to the wording of the clause. It refers to a pension fund, but what I mean is a superannuation fund approved by the Board of Inland Revenue under Section 208 of the Income and Corporation Taxes Act 1970. I am sure that the Financial Secretary will not argue with me on the wording. What I want from him is an undertaking that the spirit behind the clause will be accepted by the Government.
Much of the criticism of building societies is made in ignorance of what they do. I hope I shall not bore the Committee by saying that building societies can lend money to would-be house purchasers only if people invest in building societies. In 1951 31 per cent. of the houses in this country were owner-occupied. The figure today is just over 50 per cent. That is because over the past 25 years building societies have lent a tremendous amount of money to owner-occupiers. There are 15 million investors in building societies, the total investment is about £17,000 million and there are more than 4 million borrowers from building societies.
People should recognise that over the years building societies have rendered sterling service to owner-occupiers. Those who criticise building societies seem to think that they have a responsibility to lend to all and sundry, but they can lend only investors' money, and it would be irresponsible of them not to take proper precautions when lending money to ensure that it will be repaid.
As a digression, house owners are suffering from a high rate of interest. Building society interest is running at the rate of about 11 per cent. overall. I regret that the Government have set their face against the tax credit system, under which there would have been a 30 per cent.—now a 33 per cent.— reduction in the interest rate on a building society loan. With an automatic 33 per cent. reduction, the effective rate of interest on a building society loan would be 7 per cent. or 7½ per cent., which


would be a great boon to the building society movement.
I should like to explain the technicalities of the clause. To put it in a nutshell, under Section 343 of the Income and Corporation Taxes Act 1970 a building society is unable to repay tax to an investor. That means that for someone who invests £1,000 or £2,000 in a building society and gets 7½ per cent. interest tax-free there is no further tax liability. However, a person who invests in a building society may not be liable to tax at the standard rate. Such a person receiving dividends would get a tax repayment but, because of building societies' peculiar arrangements with the Inland Revenue, which have been built up over the years and have stood us in good stead, no repayment is allowed. The building societies have special arrangements with the Inland Revenue whereby they pay tax on behalf of their investors. It is called a composite rate, which is now running at 23·5 per cent. That rate is subject to negotiation, but I guess that it will be set at about 26 per cent.
We must always remember that building societies borrow from the general public and the general public invest in the building societies. The institutions do not invest in the building societies. Investors in building societies can withdraw their money at very short notice— within seven or 14 days, or in some cases within a month. The building societies —and this has been at the bottom of their liquidity problems in the past two or three years—have suffered considerably from the fact that they borrow short from the public and then lend that money on a 20-year or 25-year basis. This amounts to the economic nonsense of borrowing short and lending long. I hope the clause will eradicate this state of affairs.
When I originally thought of the provisions of the clause, the country was about to have a State reserve pension scheme. That scheme aimed at building up a fund to give everybody a pension at the age of 65 in addition to the ordinary retirement pension. I calculated that the amount of money which the State would have collected in contributions amounted to £260 million per year. This is long-term money, and it might be an idea to channel some of it into the

building societies. One pays a contribution on an actuarial basis, and by the time one draws it one is 60 or 65. This is the only really long-term investment there is.
The right hon. Lady the Secretary of State for Social Services has shelved the State reserve scheme, but no doubt will come forward with a further proposal. I trust that next time she will get her arithmetic right, for in past years the Labour Government have got their arithmetic on pensions wrong three times. When the right hon. Lady introduces some sort of State reserve scheme, it will be for the State to collect the superannuation contributions.
I turn to a wider aspect relating to the position of pension funds. The occupational pension schemes and private pension schemes, which are admirable schemes, involve funds amounting to £1,400 million per year. The institutions must somehow invest those sums. Any institutional investor does not always invest in long-term securities. He may put some of the money on a short-term basis and may have some of the money on call, some of it in equities, but he will have some long-term money at his disposal. I believe that it would be desirable if we could get pension funds to invest in building societies. Why do they not do so at the moment? Pension funds are exempt from income tax. But I am sure, Mr. Murton, that you would not want me to go into that, and, in any case, it does not help my argument about lending by pension funds.
Pension funds do not lend to building societies simply because if a pension fund lends £100 million or £200 million, for example, to a building society it will get its 7 per cent. tax free but, alas, it will not be able to reclaim the tax that the building society has paid on that investment. I am saying only that I do not want the repayment of tax from building societies to be extended to anyone but pension funds—approved superannuation pension funds, or whatever the definition may be.
If the composite rate of tax is 26 per cent. and the going rate is 33 per cent., obviously, from an accountancy point of view, it is easy to keep investment of pension funds absolutely separate, and


the building societies can pay the going rate on behalf of the pension fund. Presumably that rate will be 33 per cent., so there will be a repayment of 33 per cent. Compared to the ordinary investor paying 26 per cent., the pension fund paying 33 per cent. will be worse off. The pension fund will not necessarily get 7½ per cent. tax-free return. It will be more like 6¾ per cent or 6⅞ per cent. Grossed up, this will mean that pension funds will be able to invest in building societies and get a gross return of 10 per cent. or 10¼ per cent. By accepting the clause the Government will be able to channel more resources to the building societies.
If the Financial Secretary accepts my formula of a special rate of 33 per cent. for money invested by pension funds it will cost the Revenue nothing. We have now reached the stupid position where the only long-term investors in the country are the pension funds—and the size of those funds will increase when the State reserve scheme gets going—and the only long-term lenders are the building societies. We should marry the two groups together. I hope the Financial Secretary has taken that on board. There is no party point in this. I want to ensure a continuous (low of funds to building societies so that the building societies can continue the work of helping owner-occupiers. That help will dry up if there is a cash flow problem if the interest rates go up too much or if the societies cannot compete with outside interest rates.
We cannot continue to have the Government subvention to the building societies and that is something the Government should take on board. I hope that the Financial Secretary will give sympathetic consideration to the proposal. I would commend this proposal to a Conservative Government as much as to a Labour Government because it is logical and helpful to owner-occupiers. It will not cost the taxpayer a farthing but will do a tremendous amount of good.

Mr. Robert Carr: I congratulate my hon. Friend the Member for Croydon, South (Mr. Clark) on bringing forward these new clauses. He has for a long time now, as I think the Committee knows, given a lot of constructive thought to this problem. I believe that his ideas deserve serious and positive

consideration. I hope that that is what they will have.

It being Ten o'clock, The CHAIRMAN left the Chair to report progress and ask leave to sit again.

Committee report Progress.

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,
That the Motions relating to Ways and Means and to Procedure (Future Taxation) (No. 2) may be proceeded with at this day's Sitting, though opposed, until any hour.—[Mr. Thomas Cox.]

Orders of the Day — FINANCE BILL

Again considered in Committee.

Question again proposed.

Mr. Carr: As I was saying, my hon. Friend the Member for Croydon, South has given a great deal of constructive thought to this subject and I hope that the Financial Secretary will be able to assure us that the ideas which are embodied in the new clauses will receive serious and positive consideration. I am sure that there can be no doubt about the great need for new sources of savings to be channelled into the building societies.
It seems that my hon. Friend's scheme has two major advantages. First, it involves no cost to the Revenue and, therefore, is unlike most bright and popular ideas. That is unusual, and I hope that my hon. Friend's scheme will be easier to accept on that account.
Although my hon. Friend would be the first to say that his scheme bears no guarantee of producing results in all conditions, it seems to offer some real hope through the method he is suggesting of making investment in the building societies attractive to a whole new range of investment funds, to which it has hitherto been decisively unattractive. There is no doubt that if, as my hon. Friend said, we could marry the long-term investment sources of the pension funds to the building societies, which have to lend long term, we should be achieving something most helpful and substantial.
I hope that the Financial Secretary will be able to tell us that he and the Government are prepared to take on board the


spirit of these new clauses even if they may wish to make changes to them in detail. I think that the provisions within the clauses will be of considerable help in future. I ask the Financial Secretary to consider these matters seriously between now and Report. If he is not able to accept the clauses as they stand I hope that he will look at them in a constructive manner.

Mr. John Pardoe: I wish to support the clause. It seems to be doing something important for the long-term future of housing. In the present crisis it is clearly the aim, as the hon. Member for Croydon, South (Mr. Clark) has spelt out, to get new funds into the building societies.
I do not entirely share the hon. Gentleman's praises of the building society movement. To a certain extent I consider that it has been wasteful in its duplication and that its policies have been unimaginative, negative, methodical and, indeed, conservative. Having said that, there is clearly a desperate need to get more money to the potential owner-occupier as quickly as possible. The Government have made a move in that direction with their £500 million on an installment basis of £100 million a month.
As the hon. Gentleman has already said, building societies get their cash by borrowing short and lending long. It is now clear to all hon. Members that that is an inadequate base for the future financing of the kind of expansion of owner-occupation that we desperately need if we are to solve the housing problem. We need a new source of funds— preferably a new long-term source—for owner-occupation.
The clause would make it much more attractive to pension funds to put their money into building societies. There is a crisis in the building industry. The only solution, as the Government have partially recognised, is to get long-term effective demand—in other words, to provide the cash so that potential owner-occupiers can give confidence to the building industry to build houses for the future. That means having more funds available for house purchase. Short-term borrowing is not producing those funds, and is not likely to do so.
The clause would not do the whole job. I am sure that the hon. Gentleman would be the first to recognise that. But in a very simple way it makes building societies a conceivable investment for the pension fund manager, which at present they are not.
I should like to go much further. I should like to see index-linked mortgages and to see the interest rates and the capital debt index-linked. That would bring an immense amount of new pension fund money into the housing market. The clause goes some way, in a simple fashion, towards providing that new money, I hope without any cost to the taxpayer, without any cost to the Treasury. Therefore, I hope that the Government will be prepared to consider this principle.

Mr. Michael Latham: In the interests of making progress, I restrained myself with great difficulty from speaking on Clause 19, but I cannot restrain myself from supporting the new clause.
Before entering the House I had the honour to be director of the house builders federation, although I no longer have any connection with that organisation.
It was suggested in our discussion earlier that the building society movement is not only very large, which we know to be true, but very important in the finances of this country. That is also true. The assets of one building society are bigger than the whole unit trust movement, I believe. Therefore, we know the size of the exercise with which we are dealing.
It may well be that the clause, so ably moved by my hon. Friend the Member for Croydon, South (Mr. Clark), is an interesting idea that should be pursued and examined further. But I sound a note of warning. In particular, the money should be in the societies for a long time. That is most important. The lending must be long term in any scheme which is to be devised by which institutional money is to be attracted to the building societies. It is most important that it should not become hot money.
By the nature of their activities, the building societies are on a rather peculiar gearing system. It would be disastrous if large sums of money flowed into them and were taken away quickly.
The difficulty that must be examined—I am sure that the Financial Secretary will examine it when he considers the matter —is how, once the institutional money has got into the building societies, it stays there for a reasonable period so as to give stability to the housing programme, which we all want.
I should like to ask the Financial Secretary some questions, although I appreciate that he may not be able to answer them off the cuff. The Treasury, with the Department of the Environment, is responsible for the present joint forecasting committee with the Building Societies Association, which was set up by my right hon. and learned Friend the Member for Hexham (Mr. Rippon) when he was Secretary of State for the Environment. It has an important rôle to perform in regulating the size of the building programme, which is crucial to the expectations of builders.
There are two things I would ask of the hon. Gentleman. First, will he consider whether the builders should be included on that committee? I think that the rôle of the producers is very important, although I stress that I no longer have any interest in the matter.
The second thing that I wish to ask the Financial Secretary is this. Is this forecasting committee considering at present not only how the £100 million tranches shall be allocated, and the rates of interest there shall be on them, and so on, but the future level of demand, the amount of mortgage money available, and so on? When at Question Time yesterday I asked the Minister for Housing and Construction about this, he said that the committee was not doing this at present. I think that I have paraphrased what he said reasonably well.
It is most important that full, accurate forecasts should be made and that, having been made, they should be published. I hope that the Financial Secretary will comment upon that matter.
I wish the clause well. It deserves considerable examination. Certainly if we are to get a suitable level of private housing output in this country it is absolutely crucial that the amount of money flowing into the building societies should be high and, above all, consistent in amount.

Dr. Gilbert: I congratulate the hon. Member for Croydon, South (Mr. Clark)

and echo what his right hon. Friend the Member for Carshalton (Mr. Carr) said about the interest that he has shown over a long period in subjects of this sort, which are of considerable complexity. I assure the hon. Gentleman that I would be the last person to rest any case that I might have against a case that he has advanced on technical defects in the wording of the new clause. I give that assurance without question.
It may be for the convenience of the Committee if I dealt in passing with some of the other contributions before coming to the hon. Gentleman's main contribution to the debate.
Concerning the questions posed by the hon. Member for Melton (Mr. Latham), I shall certainly be happy to pass on to the Department of the Environment his suggestion that builders be included on the joint forecasting committee. I am seized of his point about the committee considering the future level of demand. The hon. Gentleman would not expect me to go further than that at present.
Concerning the matters raised by the hon. Member for Cornwall, North (Mr. Pardoe), we have already had one debate in this Committee on index linking of various sorts and we are due for another such debate before the evening is out. I hope that the hon. Member will forgive me for not following him into a discussion about index-linked mortgages on the new clause.
I come to the points made by the right hon. Member for Carshalton and the hon. Member for Croydon, South. It is true that the proposals as put forward by the hon. Gentleman would not cost the taxpayer anything. Unfortunately, though, it would marginally cost various other people something—namely, the existing building societies' composite rate. To be fair, I think that it would be affected by only a very modest amount. I do not stress the case. But the technical point is that if one takes one body of potential or existing investors out, the composite rate could be marginally affected. But I do not wish to rest on that point.

Mr. William Clark: Surely the hon. Gentleman is not entirely right in that sense. The composite rate is based on the fact that 78 per cent. of average investors, I think, are liable to tax at the standard rate and the other 22 per cent.


are not. Consequently it is the correlation of those two figures that gives one the 23½ per cent. composite rate. The idea behind the new clause was to leave that composite rate as it is, but that any new money coming in from approved superannuation schemes would be accounted for separately and then the repayment of tax would be made only on that. Consequently, there should be no side effect at all for the ordinary investor in a building society.

Dr. Gilbert: I undertake to look at that matter in greater detail later, but I am advised at present that there could be a modest effect on the composite rate. As I have said, however, I do not seek to rest on that point.
The hon. Gentleman's proposal, which was so eloquently laid before the Committee, would seek to take pension funds outside composite rate arrangements entirely and give them the right to claim tax that had been deducted. This is an extremely constructive proposal, but there are a couple of reservations about which I have to tell the hon. Gentleman.
10.15 p.m.
The first of my difficulties concerns the effectiveness of the amendment in terms of channeling more funds into the building societies. The hon. Gentleman was good enough to suggest that the effect of an alteration in the arrangements of the kind that he proposed would bring about a return to the pension funds in the range of 10 or 10¼ per cent. I had in mind a slightly higher figure. I was thinking of something a little over 11 per cent. But, as I am sure he will appreciate, in these days of extremely high interest rates the shrewd investment manager of a pension fund can very often get a return considerably in excess even of 10 or 11 per cent. if he is successful in his investments. So, to that extent, I am confident that the hon. Gentleman's proposals would not be as fruitful in channeling funds into the building societies as he hopes.
The second difficulty that I have at the moment with the hon. Gentleman's proposals is that they derogate from the principle, at any rate, of the composite rate. As he will know, the composite rate brings considerable benefits both to the Revenue and to the building societies. If, for any extraneous reason, we remove just one category of investors not liable to

income tax, we tend to undermine the principle on which the composite rate is founded.
I take the hon. Gentleman's point that he is not asking for this concession for anything other than pension funds. I see the force of his argument. But he will be the first to recognise that, even though he might be prepared to stick at pension funds, if we were to make the concession for which he asked, there would be considerable pressure on the Treasury to advance the line of concessions still further to other bodies. Once we opened the door for pension funds, we would find it difficult to restrict this relatively favored treatment to them. There would be other tax-exempt bodies such as charities which would have a claim to such treatment. All sorts of non-liable investors would seek preferential treatment on the same lines as pension funds.
Having told the hon. Gentleman of the difficulties that I have about his proposals, I repeat that I regard them as very constructive, and I should like to look at them again in the spirit in which he advanced them. If he is prepared to withdraw his clause now, I undertake to look at it carefully between now and Report.

Mr. William Clark: I am grateful to the Financial Secretary. I do not suggest that he pays too much attention to creating a precedent in terms of pension funds, because that argument can be thrown back at him. Pension funds are exempt from lax, and the argument could be used that because pension funds are exempt from tax many other people should be.
I am not suggesting that the principle should be extended. The Financial Secretary said that charities might want to invest in this, that or the other. However, with charities we are in exactly the same position as with the general public. Charities do not normally lend long. They lend short. Only pension funds lend long.
I shall not pursue the argument at this hour. I am grateful for what the Financial Secretary said. In view of his categorical undertaking to do something between now and Report, I beg to ask leave to withdraw the clause.

Motion, and clause, by leave withdrawn.

New Clause 8

CAPITAL GAINS TAX AND INFLATION

(1) Part 111 of the Finance Act 1965 shall be amended in accordance with the following provisions of this section.

(2) In section 22(10) (definition of chargeable gain) for the words "every gain" shall be substituted the words "every real gain".

(3) After section 22(10) shall be added: —
(11) in the preceding subsection 'real' gain means the money value of the gain diminished by reference to any increase in the cost of living index since the date of acquisition ".—[Mr. David Mitchell]

Brought up, and read the First time.

Mr. David Mitchell: I beg to move, That the clause be read a Second time.
I understand that we may discuss at the same time New Clause 11—owable deductions in computing capital gains.
I notice the absence from the Notice Paper of the names of some of my right hon. and hon. Friends in the list of hon. Members appended to this amendment. For that reason, I address my remarks to them as well as to the Financial Secretary.
I want to go back to the original intention of the Labour Government in 1965 in introducing a capital gains tax. I quote from the speech of the then Chancellor of the Exchequer on 11th November 1964. Referring to capital gains tax, he said:
I intend to make a start next spring with two major tax reforms. The first will be a capital gains tax. The dividing line between capital income has become blurred. The Income Tax system has been misused by some to avoid paying Income Tax by entering into arrangements which dress up income, which is taxable, to look like capital, which is mainly untaxed."—[OFFICIAL REPORT, 11th November 1964; Vol. 701, c. 1039–40.]
I accept for the purposes of the discussion that that purpose is not one with which I am to quarrel. The purpose of my new clause is very limited. I do not at the moment question even the principle of tax on the real increase in the value of investment. I shall be happy to question that on another occasion. Tonight I have a much more limited purpose, that of seeking to question tax on the paper gain which arises as a result of inflation.
My right hon. Friends during the passage of the 1965 capital gains tax legislation took a robust view in opposing this point and seeking to link to inflation a rebate for any liability to tax. I am sorry that with the passage of time they have changed their view on occasions to one of saying "Do not get worked up about this. We are tackling inflation and it is better to stop inflation than to account for it." But we have to live in the real world and accept that inflation is with us. It is no use pretending that we can expect any Chancellor of the Exchequer, no matter how successful he may be, to make it go away. We take account of inflation in wages and prices and even in income tax. Chancellors have come forward and announced reductions in income tax. I do not charge the present Chancellor with such an act, but it has been done. As a result of fiscal drag Chancellors have been able to do this, and so they have taken account of the effect of inflation in the real world, but they have not taken account of inflation in relation to capital gains tax.
I can give a simple straightforward example of how this situation operates in the real world. Supposing one had invested £1,000 in 1965. What would that be worth today? Would it be worth £1,400, £1,600 or £1,700; no, it would be worth £1,815 today purely on the decline in the value of money. I say "today" but that figure is for April 1974 and since inflation is gathering pace it is, of course, worse now. Nevertheless, of the £1,000 investment £815 is now to have 30 per cent. capital gains tax paid on it, and 45 per cent. of the paper value of any investment held today since 1965 is being made liable to a 30 per cent. tax. That is not a tax on gain but a wealth lax and on real investment.
I should have thought that it would have been agreed on both sides of the Committee that the crucial need for the business and economy of the country is to generate an increasing flow of investment and an increasing amount of savings. Yet what do we do? We tax it and, indeed, do our best to discourage it taking place.
I make no apology for referring to small businesses. The Bolton Committee, when it examined the position of small businesses, drew attention to the


fact that they were businesses which expanded by clawing back their own profits. Any business proprietor who now considers expanding his business must take account of the fact that money which he ploughs back into it ends up as increased capital value of the business and has a 30 per cent. tax liability on it. So we discourage the proprietor from expanding his business.
Then there is the 20-year cycle. Businesses are alive, moving from one generation to another. When they are given— not sold but given—from one generation to another, 30 per cent. of the increase in the value of the business has to be found. At the very time that the younger generation comes in to build on the foundation laid by a previous generation, retrenchment has to be the order of the day to find the funds to pay capital gains tax.
Then there are farmers. The breakup of economic farming units is an absolute necessity in passing a farm from one generation to another, unless one is totally to prevent—perhaps that is what Labour Members want—any transference from one generation to another of a business or a firm.

Mr. Russell Kerr: Declare an interest.

Mr. Mitchell: I do declare an interest. I am a small businessman. I am not a farmer; I wish I were.
Then there is the locking-in effect, which means that many older people stay in their businesses when they should have retired because of the liability to capital gains tax, which means that they face a real decline in the amount on which they will keep themselves in their old age. Among bigger businesses, the operation of the money market is dislocated. Instead of its being the best reallocation of resources in the economy, the blockage of capital gains tax liability locks investors into investments which they should have shed.
These are many of the practical damages caused by capital gains tax which taxes inflation, the paper increase in the value of an investment. I will not embarrass my hon. Friend the Member for Worthing (Mr. Higgins) by quoting from some of his past speeches, but I am

delighted to record the stout and robust way in which in 1965 he drew attention to the dangers and risks in this aspect. I hope that he will do so again tonight and that he will join me and some of my hon. Friends in the Lobby.
I would ask the Committee to consider the effect of this situation on the sort of society in which we live. Those in the Labour Party who believe in Socialism believe in concentrating wealth into the hands of the State. This is a very effective way of doing it. No less than £1,000 million has already passed from private investment into the hands of State and Government. Man proposes and Benn disposes.
We Conservatives believe in the creation of new wealth, in spreading wealth throughout the community, in encouraging investment and in all those concepts which are damaged by the taxation of paper gains by capital gains tax. For these reasons and for reasons of simple social justice—for this is confiscation, not taxation—I hope that I shall have the support of my hon. Friends in seeking to make the sort of society in which we believe.

10.30 p.m.

Mr. Bruce-Gardyne: I rise to speak very briefly—

Mr. Russell Kerr: Hear, hear.

Mr. Bruce-Gardyne: I have a train to catch, hon. Members will be relieved to hear.
I support my hon. Friend the Member for Basingstoke (Mr. Mitchell), who has moved the Second Reading of his new clause most eloquently. We are also discussing new Clause 11, in my name and that of my hon. and learned Friend the Member for Dover and Deal (Mr. Rees). New Clause 8 is designed to achieve the inflation-proofing of capital gains tax. In case the Financial Secretary should be feeling too mean to accept that new clause, I hope that he will look with favour on mine, which is rather more modest, being designed simply to offset the impact of inflation in capital gains by only 5 per cent. per annum. At the present rate of inflation presided over by this Government, 5 per cent. per annum is nothing like inflation-proof, not by a very large margin.
The Financial Secretary will recognise this amendment. We discussed it last year for five and a half hours. We may be able to dispose of it more swiftly tonight. There were special factors at work last year. When we discussed the proposition contained in New Clause 11 last year the Financial Secretary, speaking on that occasion on behalf of the Opposition, said he had some sympathy with the proposition because, in effect, he acknowledged that capital gains tax without some form of tapering for the impact of inflation amounted to a selective wealth tax. He was in favour of a wealth tax. We are now threatened with this famous wealth tax. In advance of that I should like to assume that the Financial Secretary will be able to accept New Clause 11, if not New Clause 8.
From this side of the Committee we have demonstrated cogently the strength of the case for some relief from the impact of this highly discriminatory wealth tax—the effect of the capital gains tax—which is in no sense inflation-proof at a time of rampant inflation.
I give one example of what is involved under the present arrangements. Last year one of my constituents pointed out that she owned jointly with her mother a small farm which they purchased in 1965 for £15,000. She and her brother worked the farm and one of her sons worked on the farm with them. Another son had an independent business. The mother reckoned it was tough that the son who worked on the farm should receive a very low wage, because that was all they could pay him. He had no participation in the capital value of the farm, whereas his brother was developing a business independently and enjoying capital appreciation and a much higher wage. She went to her solicitor and asked him to draw up a deed to enable her to dispose of half of her share in this small farm to her son. She was staggered to be told it would cost her £7,000 to do so. That is the impact of capital gains tax without any form of tapering provision for the impact of inflation. It is grossly unjust. It is time this was recognised.
The case has been argued on recurrent Finance Bills. It has lost nothing in the telling year after year, as inflation has gathered momentum, until we are at the present horrific rate over which the

Government are presiding when the case is overwhelming.
If the hon. Gentleman the Financial Secretary cannot accept New Clause 8, he can at least accept New Clause 11.

Sir John Hall: I support this provision partly from a feeling of nostalgia. From the time capital gains tax was introduced in its present form, year after year when Labour were in office I moved similar amendments designed to draw attention to the fact that this tax was not a tax on capital gains but a tax on capital. Even in those days, when inflation was running at a much less severe rate than it now is, this was true.
It is even truer today that capital gains tax, in its present form, is destroying capital. This may be the intention, but the Government should be honest enough to say so. They should say "We are trying not only to tax capital gains but to tax capital. This is one form of wealth tax." I hope that when Labor's Green Paper on wealth tax is published it will take this matter into account, so that we do not have a wealth tax imposed twice—once in its normal form and then, in a hidden form, through capital gains tax.
In equity, there is no justification for continuing a tax of this kind without some tapering measure taking inflation into account. I appreciate that to talk of equity in the same breath as fiscal legislation is nonsense, since fiscal legislation rarely has much to do with equity. I hope the Financial Secretary will admit that without doubt the imposition of capital gains tax in its present form will destroy capital. If he admits that, at least we shall know where we are. I hope that he will be more forthcoming than that and be prepared, if not to accept one of the new clauses, to suggest measures of his own which will have the same sort of effect.

Mr. R. J. Maxwell-Hyslop: My hon. Friend the Member for Wycombe (Mr. Hall) emphasised that a capital gains tax in a period of inflation is a capital levy smuggled in under the guise of a capital gains tax. Whether or not one happens to believe that a capital levy is either a wise or a morally correct thing to do—and I do not believe it is either—what one can agree is that


arguments for a capital levy are different from those employed for a capital gains tax. The strongest logical reason for accepting New Clause 8 is the argument that one form of tax is being smuggled in under the guise of another form of tax.
There are also other cogent reasons for accepting the provision. The Labour Party, especially in the constituencies, likes to claim that it is opposed to the take-over of small businesses or their absorption into large businesses. But again this is what becomes inevitable when one has a capital levy smuggled in in the guise of a capital gains tax.
In many small family enterprises the only way in which the capital can be raised to pay what is, in effect, a capital levy is by selling out to a much larger competitor. The net effect of this running through the economy is to agglomerate into larger and larger units what was once a highly competitive structure of small enterprises. Perhaps the Labour Party considers this to be a desirable aim, but its members should realise what is happening. No party is guiltless in this matter. The two elements should have been separated long ago. There should have been introduced into the computation of capital gains tax a discount for the change in the value of money. I have pressed this course on my right hon. Friends since the early 1960s. No time could be more appropriate than tonight to embody this new clause because at no time has the rate of inflation been so high. The higher the rate of inflation we have and expect, the more compelling is the argument for embodying the clause in the Bill.

Mr. MacGregor: I support the clause. As a new Member I am well aware that this clause, or variations of it, have been proposed before. At the rate of inflation we have been experiencing recently, the need for such a clause becomes more pressing. Capital gains tax in its present form is much more penal. We have had many debates about inflation indexing, but this one is different. The previous debates were concerned with keeping the threshold allowances for the higher rates of tax at the same real levels as in whatever earlier period we were choosing.
Here we are talking about whether a capital gain actually exists. For example,

if at the date of the introduction of capital gains tax in April 1965 an investor had invested £100 in each of the 30 shares in the Financial Times share index he would at the beginning of this year have had an apparent gain of £4,743. But the effect of capital gains tax and inflation turns that into a loss of nearly £800.
To put it another way, if a person had acquired an asset between 1965 and 1973 he would now have to show a so-called gain of 95 per cent., almost double, simply to break even. We can see that capital gains tax as it stands is a fraud and a disincentive to saving. I do not wish to expand now on the importance of saving. We all know that this year the effect of inflation and the expected rise in prices, coupled with the net return on savings when the highest increases in tax through this Bill are taken into account, has meant that there is no incentive to save.
The effect of the Budget has been to reduce even further the incentive to save. Capital gains tax is a further severe disincentive. Acceptance of the clause would at least ameliorate the effect of the rest of the Bill on savings.

Dr. Gilbert: As the hon. Member for Norfolk, South (Mr. MacGregor) has rightly said, we have already had several debates on indexing during the course of the Bill. I do not know whether this will be the last. I doubt it. I recognise that the hon. Member for Basingstoke (Mr. Mitchell), who moved this clause so fluently, has been perfectly consistent in urging his point of view on his own Government no less than this one. That is true of most of his hon. Friends who supported him.
As the hon. Member for South Angus (Mr. Bruce-Gardyne)—who has explained to me why he has had to leave—said, when debating the 1972 Finance Bill I recognised that there was an element of unfairness in capital gains tax in that it did not take account of considerations of this sort, particularly in times of severe inflation. I have sympathy with what the hon. Gentleman is putting forward.
Before hon. Gentlemen think that I am about to have a brainstorm, let me hasten to add that they will recognise that I was also consistent in that in Committee, while I had sympathy with the point


of view that there was an element of unfairness, I never supported hon. Gentlemen in a Division for the simple reason that it was always my view, and that of my hon. Friends, that this was only one relatively minor element of unfairness in a fiscal system in which there were many other unfair nesses which needed to be attacked before moving in that direction.
10.45 p.m.
It might have been the hon. Member for Basingstoke who alluded to the series of rugged speeches made by his hon. Friend the Member for Worthing (Mr. Higgins) in 1965. Unfortunately, I was not then in the House to be privileged to hear those speeches. I am equipped with some rugged speeches made by the hon. Member for St. Ives (Mr. Nott) in Committee a couple of years ago which I am sure will be familiar to the hon. Member for Basingstoke. I do not seek to embarrass him by quoting them at him now. Suffice it to say that I am sure the hon. Gentleman recognises that once the principle of indexation is conceded in the tax system it is capable of indefinite expansion. No sooner do we have indexation of capital gains than we have the problem of the indexation of profits and the putting up of a case for the indexation of basic income tax. To say that it would simplify the tax system is nonsense. Hon Gentlemen opposite, who have many times urged the need for simplification of the tax system, will recognise that there is an element of conflict between the two objectives. The only answer would be to seek to reduce the rate of inflation, as the hon. Member for St. Ives said in the Committee debate to which I have alluded.
In New Clause 11 there is an automatic formula for a 5 per cent. indexation year by year regardless of the rate of inflation over which the hon. Member for South Angus, choosing his words carefully, said that we were presiding. He did not say that we were agents of that inflation. It is not for me to suggest that in the foreseeable future we shall succeed in bringing the rate of inflation below 5 per cent, per annum. I only hope that we shall. Should that happy day dawn, a formula of the sort suggested in New Clause 11

would produce uncovenanted benefits for those who are unfortunate enough to pay capital gains tax.

For reasons which I am sure the hon. Member for Basingstoke appreciates. I cannot advise the Committee to accept the clause.

Mr. Robert Carr: I shall be brief, which is a pity because this is an important subject which deserves lengthy discussion. However, at this late hour it is everyone's wish that it should be settled quickly.
Had the Financial Secretary said what he said in the context of a Government who were pursuing a genuinely determined anti-inflation policy it might have cut some ice. But in view of the Government's policy, which is to tackle inflation in the manner of building sandcastles to stop the incoming tide, what he said cuts no ice and is unacceptable to us.
If we are to have a healthy economy, investment must be encouraged and protected. It is essential for the independence and well-being of millions of individual citizens that investment can be made with confidence and that it can be protected. That is also essential for the stability of society as a whole. We shall not get strength and confidence in investment if at one and the same time we have inflation at this rate and real capital losses and then insist on taxing not capital gains but capital losses. For all those reasons I advise my right hon. and hon. Friends—

Dr. Gilbert: Will the right hon Gentleman enlighten the Committee as to why, when inflation reached unprecedented levels under his administration, he did not introduce the proposals on which he is now so keen

Mr. Carr: We were at least having a genuine battle against inflation which the present Government have given up. I advise my hon. and right hon. Friends to divide the Committee in support of the clause.

Question put, That the clause be read a Second time: —

The Committee divided: Ayes 118, Noes 136.

Brittan, Leon
King, Evelyn (Dorset, S.)
Price, David (Eastleigh)


Bryan, Sir Paul
Knox, David
Rathbone, Tim


Buck, Antony
Lamont, Norman
Rees, Peter (Dover &amp; Deal)


Budgen, Nick
Lane, David
Rees-Davies, W. R.


Bulmer, Esmond
Lawrence, Ivan
Rifkind, Malcolm


Burden, F. A.
Lester, Jim (Beeston)
Roberts. Michael (Cardiff, N.-W.)


Butler, Adam (Bosworthi)
Lloyd, Ian (Havant &amp; Waterloo)
Ross, Stephen (Isle of Wight)


Carlisle, Mark
Luce, Richard
Sainsbury, Tim


Carr, Rt. Hn. Robert
McAdden, Sir Stephen
Shaw, Giles (Pudsey)


Chataway, Rt. Hn. Christopher
MacArthur, Ian
Shaw, Michael (Scarborough)


Clark, A. K. M. (Plymouth, Sutton)
Macfarlane, Neil
Silvester, Fred


Clegg, Walter
MacGregor, John
Sims, Roger


Cope, John
McLaren, Martin
Smith, Dudley (W'wick&amp;L'm'ngton)


Corrie, John
Macmillan, Rt. Hn. M. (Farnham)
Spicer, Jim (Dorset, W.)


Crouch, David
Marshall, Michael (Arundel)
Spicer, Michael (Worcestershire, S.)


d'Avigdor-Goldsmid, Maj.-Gen. James
Mother, Carol
Stanbrook, Ivor


Dodsworth, Geoffrey
Maude, Angus
Steen, Anthony (L'pool, Waver tree)


Drayson, Burnaby
Maxwell-Hyslop, R. J.
Stewart, Ian (Hitchin)


Durant, Tony
Miller, Hal (B'grove &amp; R'ditch)
Taylor, Robert (Croydon, N.W.)


Fisher, Sir Nigel
Miscampbell, Norman
Tebbit, Norman


Fox, Marcus
Mitchell, David (Basingstoke)
Temple-Morris, Peter


Gardiner, George (Reigate&amp;Banstead)
Moate, Roger
Thomas, Rt. Hn. P. (B'net.H'dn S.)


Goodhart, Philip
Money, Ernie
Townsend, C. D.


Goodlad, A.
Morgan, Geraint
Trotter, Neville


Gorst, John
Morgan-Giles, Rear-Adm.
Tugendhat, Christopher


Gower, Sir Raymond (Barry)
Morris, Michael (Northampton, S.)
van Straubenzee, W. R.


Grant, Anthony (Harrow, C.)
Morrison, Charles (Devizes)
Vaughan, Dr. Gerard


Grieve, Percy
Morrison, Peter (City of Chester)
Viggers, Peter


Grist, Ian
Mudd, David
Waddington, David


Hall, Sir John
Neave, Airey
Wakeham, John


Hall-Davis, A. G. F.
Neubert, Michael
Weatherill, Bernard


Hampson, Dr. Keith
Newton, Tony (Braintree)
Winterton, Nicholas


Havers, Sir Michael
Page, Rt. Hn. Graham (Crosby)
Worsley, Sir Marcus


Hawkins, Paul
Pardoe, John
Young, Sir George (Ealing, Acton)


Higgins, Terence
Parkinson, Cecil (Hertfordshire, S.)



Hordern, Peter
Percival, Ian
TELLERS FOR THE AYES:


Howe, Rt.Hn. Sir Geoffrey (Surrey, E.)
Peyton, Rt. Hn. John
Mr. Hamish Gray and


Jenkins, Rt. Hn. P. (R'dgeW'std&amp;W'fd)

Mr. John Stradling Thomas.




NOES


Atkins, Ronald (Preston, N.)
Fraser, John (Lambeth, Norwood)
Marks, Kenneth


Barnett, Joel (Heywood &amp; Royston)
Freeson, Reginald
Marshall, Dr. Edmund (Goole)


Bates, Alf
Garrett, John (Norwich, S.)
Meacher, Michael


Bennett, Andrew F. (Stockport, N.)
Garrett, W. E. (Walisend)
Mellish, Rt. Hn. Robert


Bishop, E. S.
George, Bruce
Millan, Bruce


Blenkinsop, Arthur
Gilbert, Dr. John
Molloy, William


Boardman, H. (Leigh)
Golding, John
Morris, Charles R. (Opens haw)


Booth, Albert
Graham, Ted
Mulley, Rt. Hn. Frederick


Brown, Hugh D. (Glasgow, Provan)
Grant, George (Morpeth)
Murray, Ronald King


Callaghan, Jim (M'dd'ton &amp; Pr'wich)
Grant, John (Islington, C.)
Newens, Stanley (Harlow)


Clemitson, Ivor
Griffiths, Eddie (Sheffield, Brightside)
O'Halloran, Michael


Cocks, Michael
Hardy, Peter
O'Malley, Brian


Cohen, Stanley
Harper, Joseph
Ovenden, John


Coleman, Donald
Harrison, Walter (Wakefield)
Palmer, Arthur


Colquhoun, Mrs. M. N.
Hooley, Frank
Parker, John (Dagenham)


Colcannon, J. D.
Horam, John
Parry, Robert


Conlan. Bernard
Howell, Denis (B'ham, Small Heath)
Pendry, Tom


Cook, Robert F. (Edinburgh, C.)
Huckfield, Leslie
Prescott, John


Craigen, J. M. (G'gow, Maryhill)
Hughes, Mark (Durham)
Roberts, Albert (Normanton)


Crosland, Rt. Hn. Anthony
Irvine, Rt. Hn. Sir A. (L'p'l.EdgeHill)
Roderick, Caerwyn E.


Cryer, G. R.
Jackson Colin
Rodgers, George (Chorley)


Dalyell, Tarn
Janner, Greville
Ross, Rt. Hn. William (Kilmarnock)


Davies, Bryan (Enfield, N.)
John, Brynmor
Rowlands, Edward


Davies, Ifor (Gower)
Jones, Dan (Burnley)
Silkin, Rt. Hn. John (L'sham.D'ford)


Deakins, Eric
Jones, Gwynoro (Carmarthen)
Silverman, Julius


Dean, Joseph (Leeds, W.)
Jones, Alec (Rhondda)
Skinner Dennis


Delray, Hugh
Judd, Frank
Smith, John (Lanarkshire, N.)


Dell, Rt. Hn. Edmund
Kaufman, Gerald
Snape, Peter


Doig, Peter
Kerr, Russell
Spearing, Nigel


Dormant, J. D.
Kilroy-Silk, Robert
Stallard, A. W.


Douglas-Mann, Bruce
Kinnock, Neil
Stoddart, David (Swindon)


Duffy, A. E. P.
Lamborn, Harry
Stone house, Rt. Hn. John


Dunn, James A.
Lamont, James
Strang, Gavin


Eadie, Alex
Latham, Arthur (CityofW'minsterP'ton)
Swain, Thomas


Edge, Geoff
Ledbetter, Ted
Tavern, Dick


Ellis, Tom (Wrexham)
Lewis, Ron (Carlisle)
Tinn, James


English, Michael
Loughlin, Charles
Tomlinson, John


Evans, Fred (Caerphilly)
Lyon, Alexander W. (York)
Tuck, Raphael


Evans, John (Newton)
MacFarquhar, Roderick
Urwin, T. W.


Faults, Andrew
McGuire, Michael
Varley, Rt. Hn. Eric G.


Ferny Hough, Rt. Hn. E.
Mackenzie, Gregor
Wainwright, Richard (Coins Valley)


Flannery, Martin
Maclennan, Robert
Walker, Terry (kingwood)


Fletcher, Ted (Darlington)
Madden, M. 0. F.
Wellbeloved, James







Whitehead, Phillip
Woof, Robert



Williams, Alan Lee (Hvrng, Hchurch)
Wriggles worth, Ian
TELLERS FOR THE NOES


Wise, Mrs. Audrey
Young, David (Bolton, E.)
Mr. Thomas Cox and


Woodall, Alec

Mr. Laurie Pavitt.

Question accordingly negative.

To report Progress and ask leave to sit again.—[Mr. Harper.]

Committee report Progress; to sit again tomorrow.

WAYS AND MEANS

RESIDENCE (INCOME TAX AND CAPITAL GAINS TAX)

Resolved,
That provision may be made whereby for the purposes of income tax and capital gains tax residence in the United Kingdom has in certain circumstances the same consequences as domicile in the United Kingdom.—[Mr. Joel Barnett.]

PROCEDURE (FUTURE TAXATION)

(No. 2)

Resolved,
That any provision included in the Finance Bill in pursuance of the Order of this House of 1st April 1974 authorising provisions relating to ordinary residence in the United Kingdom and taking effect in a future year may be amended as if in that order the word 'ordinary' had been omitted.—[Mr. Joel Barnett.]

CHANNEL TUNNEL [MONEY] (No. 2)

Queen's Recommendation having been signified—

Resolved,
That, for the purpose of any Act of the present Session to provide for the construction and operation of a railway tunnel system under the English Channel, it is expedient to authorise—

(1) the payment out of money provided by Parliament of sums required to meet expenditure incurred by the Secretary of State in making payments for the purpose of restoring any land in pursuance of that Act;
(2) the payment out of money provided by Parliament of any increase attributable to that Act in the sums so payable under any other enactment in connection with the use of the tunnel system;
(3) the payment out of the Consolidated Fund of such sums as may be required for fulfilling guarantees given by the Treasury in relation to money borrowed for the purpose of providing finance for the construc-

tion and maintenance of the tunnel system provided the sums so borrowed do not exceed £1,000 million.— [Mr. Harper.]

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]

RENT FREEZE

11.2 p.m.

Sir John Eden: I want tonight to speak briefly on behalf of landlords—not the property companies, for some of which I have no time whatever, or for those whose main business activity is the ownership of buildings for letting. The landlords I have in mind are those who own one or two houses besides the one in which they live or the man who may be the owner-occupier of a home which is divided into flats. These people can best be described as small private landlords. They include a high proportion of retired people whose life savings have been invested in the property as a hedge against inflation and to provide some security for their old age. Many live in my constituency and there are doubtless thousands throughout the country. All have been adversely affected by the Government's order freezing rents, and in several cases known to me there is evidence of real hardship.
I ask the Minister to try to set on one side his undoubted prejudice against the private landlord as such and to comprehend the extent of the injustice for which his order is directly responsible.
I want to put my remarks into balance by making clear that I am fully alive to the widespread unhappiness caused by inadequate housing conditions. People come to my constituency who find it necessary to draw attention to the plight of the homeless by illegally squatting in private premises.
I am aware of individual cases of hardship and I am ready at any time to take up the cudgels on behalf of tenants where there is evidence of unscrupulous intimidation by private landlords. I do not want to make out that all small private landlords are good, but I


emphasise that only very few are bad. In my constituency I know of more cases of abuse by the tenant than by the landlord. It is regrettably such a common experience that many people are deterred from letting rooms which would otherwise come on to the market. That applies to all forms of letting including, most unfairly, instances in which the owner of holiday accommodation has agreed to a cheap short-term let for the winter months only to find that when summer comes the tenant refuses to leave. The consequences of such a breach of faith can be a costly nightmare for the owner, as I am sure hon. Members will understand.
There is no doubt in my mind that so heavily is legislation now loaded against the landlord that many people who would otherwise make rooms available are deterred from doing so by fear of being victimized by a bullying tenants exercising the muscle-power which the protection of the law undoubtedly gives him.
On top of all that I have described, there is now the rent freeze. When I raised this matter in the House at Question Time on 8th May the Minister told me that he was examining the effects of the rent freeze order. Perhaps he will now explain just what has been involved in that examination and, more importantly, what has been the outcome. Has he yet come to any conclusions? If so, will he share them with the House? Will he tell us what the position is for those who under the Housing Finance Act 1972 registered a regulated rent which provided for increments to be paid over the period covered by the freeze? If a fair rent was fixed in 1971, it is clearly becoming progressively less fair as the rent freeze continues.
The hon. Gentleman will be aware of the way that costs have risen in the past few months. I know that there is dispensation from the operation of the rent freeze in respect of rates and in respect of any genuine improvements which are made to the premises, but what has the Minister to say about the average increase of 30 per cent. on electricity charges, the 70 per cent. increase in night storage heater tariffs and the 100 per cent. increase for heating oil? Will he cast his

mind forward to the circumstances which are likely to arise this winter and the effect that those increases are likely to have on the return that landlords can expect to get from the capital they have invested in the premises they have put out to let?
It would be only fair if, in assessing rents under the Rent Act, rent officers were to pay more regard to the upward movement of costs and values at a time when, because of the operation of the rent freeze, no increase can take place which has regard to the way in which costs have gone up. We are told that the purpose of the rent freeze is to help to counter inflation. I have had letters from the Minister and from his hon. Friend the Minister for Housing and Construction explaining that while they recognise that in the operation of the Rent Act difficulties are undoubtedly being caused, such difficulties have to be endured in the overriding interest of countering inflation. I hope that tonight I shall not have from the hon. Gentleman a catalogue of statistics. I just want the briefest of comments from him, and I shall be very brief myself.
We are told that the rent freeze has been designed to help to counter inflation. The hon. Gentleman will recognise how hollow that sounds to my constituents and others like them when they have to contemplate cost increases on the scale I have indicated. This is an exercise in futility.
What is to happen this winter? Why should these people, many of whom have smaller incomes than those of their tenants, be even more out of pocket? Is this the Socialist concept of equality, which requires an elderly, low-income landlord to subsidise the rent of a young, able-bodied, wage-earning tenant? That is not a figment of my imagination. I have many examples where that is exactly the situation which has been brought about by the operation of the order.
I emphasise again that it is for the small landlord that I speak tonight, for him and his kind who provide tens of thousands of homes throughout the country and who are being done a great injustice. They certainly deserve better treatment than that. Is there the slightest chance that they will get it from the present Government?

11.12 p.m.

The Under-Secretary of State for the Environment (Mr. Gerald Kaufman): The right hon. Member for Bournemouth, West (Sir J. Eden) has put his case with considerable strength of feeling. He was a distinguished member of the previous Government, which in 1972 introduced a similar rent freeze—in violation of the manifesto upon which his party was elected. We brought in a rent freeze three days after we became the Government. We did it under the legislation of the right hon. Gentleman's party and in fulfillment of our election pledge.
The right hon. Gentleman's Government's rent freeze came in at the beginning of the winter, when the need for fuel services to which he referred was at its height. Our rent freeze came in at the end of the winter, and on present plans, provided we get our legislation for the first stage of the repeal of the Housing Finance Act through the House, it will end on 31st December.
When the Government of which the right hon. Gentleman was a member introduced a rent freeze, we did not hear him protest at the impact on his constituents.

Sir J. Eden: The hon. Gentleman said that the freeze will end on 31st December. Am I correct in taking it that no form of order or restraint will take its place?

Mr. Kaufman: What I said was that, provided we got our legislation through the House for the first stage of the repeal of the Housing Finance Act, the rent freeze would lapse. Otherwise, we shall have to look at the situation again. It will depend on whether our legislation is through in time.
The right hon. Gentleman did not protest at the impact of his Government's rent freeze, nor did any other Conservative Member campaign on behalf of the landlords to get it lifted. It was regarded as an indispensable part of that Government's counter-inflation policy. Nevertheless the present Government recognise that housing associations and good landlords who supply services involving heating and hot water have a case.
As regards housing associations, which are non-profit-making organisations fulfilling a recognised social function, we have decided to compensate them for the

rent freeze by amendments to the Housing Bill, which this evening completed its Committee stage. This is possible and fairly simple because housing associations are eligible for subsidy.
My right hon. Friend the Secretary of State for the Environment pointed out at the annual general meeting of the National Federation of Housing Associations on 29th May that
We are proposing to provide some relief from the effects of the rent freeze in circumstances where housing associations have incurred inevitable increases in fuel costs for central heating and hot water and which are currently irrecoverable under the freeze.
My hon. Friend the Minister for Housing and Construction reaffirmed that this was what we were going to do in the Standing Committee on the Housing Bill, which was completed today, when he said on 23rd May:
I am concerned that the measures we are already taking may not go far enough in dealing with the immediate problems facing some associations. My aim therefore is to introduce an amendment to tackle these properly … in a way consistent with, and to pave the way towards, any general switch to a deficit financing subsidy system for housing associations which might emerge as a result of the review which I have told the Committee is in hand. I cannot produce the amendment immediately, but I hope to do so as a new clause or at least on Report."— [OFFICIAL REPORT, Standing Committee B, 23rd May 1974; c. 165.]
That is still the Government's intention. That deals with housing associations.
I recognise that the Conservative Party believes in subsidizing private landlords. It did it in the Housing Finance Act, under which the landlord receives the full rent and the rent allowances are paid out of the public purse. The present Government do not believe that it is right further to extend subsidies to landlords, and the only other way to compensate landlords for the increased fuel costs, which without question they are having to bear, is by amendment to the counter-inflation order which we introduced in March. I advise the right hon. Gentleman and the House, however, that such an amendment is very difficult to devise in a way which would not provide a loophole which would allow bad landlords to frustrate the rent freeze.
The right hon. Gentleman has spoken about good landlords. I do not deny his right to refer to them. But he will also recognise—I shall have occasion to refer


to this matter—that there are bad landlords as well. The rent freeze to which the right hon. Gentleman refers with such strength of feeling also arouses strength of feeling in my hon. Friends, many of whom say that in any case it is decidedly not watertight. They are dissatisfied with the way in which it operates on behalf of tenants.
The right hon. Gentleman has stated the case for good landlords—and there are good landlords. There are similar landlords in my constituency, and they have made representations to me of the nature of those which the right hon. Gentleman has put tonight. If all landlords were as innocuous and as deserving as those for whom the right hon. Gentleman has spoken and those who have written to me, there would be no problem. We could introduce an amending order with no difficulty. But many landlords are far from deserving, far from altruistic and far from the vulnerable widows and orphans who, the right hon. Gentleman implied, are victimized by the swaggering bullies who live in the accommodation which they provide. Indeed, even the landlords for whom the right hon. Gentleman speaks are not always as public spirited as he would imply. I refer, for example, to a lady whom the right hon. Gentleman will know very well. She is Mrs. Doris Johnson, of the Bournemouth and South-West Landlords' Association. The right hon. Gentleman is the Member for Bournemouth, West and, justifiably, has connections with that association and with that lady. She wrote a letter to the hon. Member for Bournemouth, East (Mr. Cordle) which was sent to me, and I commented on it in a letter to him of 14th May. She said:
All we really seek is that tenants (in addition to the landlord) keep to their contract, then there would be no need for tribunals, rent officers, court cases, etc.
I think that that letter demonstrates the basic unwillingness to accept the very principles underlying the legislation on rents, and it is an attitude which we find totally unacceptable.

Sir J. Eden: Is the hon. Gentleman now deliberately implying that the main purpose of the order is to get at the bad landlords—or is it, in his view, a genuine act to help to counter inflation?

Mr. Kaufman: It is an order to fulfil the pledge we made in the General Election, namely, that until we had repealed the Housing Finance Act we would stop the progression in both public and private rented accommodation to what the Conservative Government quaintly called "fair rents" when they introduced the Housing Finance Bill. There is also a counter-inflationary element in it. We have introduced it under the previous administration's own Counter-Inflation Act.
I have spoken about bad landlords. Every day, including today, I receive letters from my constituents about the most appalling cases of harassment and ill treatment of tenants in my constituency. Only this week a landlord in my constituency, in order to evade the provisions of the legislation which protects tenants, has tumbled my constituents' furniture out into the streets, poisoned their goldfish, kidnapped their pet cats and vowed to get them out regardless of the law. Another landlord in my constituency refuses to carry out repairs to a decrepit house inhabited by a bed-ridden old lady of 90.
There are others besides the landlords of whom the right hon. Gentleman speaks so feelingly. Landlords like this are only looking for a way to dodge and fiddle their way round this Government's rent freeze. If these landlords were allowed to put up rents to take account of increased service charges, without the most stringent safeguards being implicit and written into any amendment, we would be giving them a licence to exploit tenants by putting up rents at will and blaming the increase on service charges.
The right hon. Gentleman can imagine it very well. The landlord would go to his tenant and say "I have to put up your rent. I know that there is a rent freeze, but the Government are allowing me to put up rents where service charges or fuel charges are in question. The costs of oil and electricity have gone up. The cost of coal may go up. There are rum ours about the cost of gas. I have to put up your rent." The increase would be in no way commensurate with the increase in charges, and the landlord would be able to violate the rent freeze and violate the policy on which this Government were elected.
This is our dilemma, and it is a difficult one. It is how to provide an easement, which we acknowledge should be considered for good landlords in genuine difficulties, without at the same time opening the door to bad landlords.
Consequent upon the reply which I gave the right hon. Gentleman on 8th May, he asked me what we were doing. I shall tell him. We are doing our best to find a way of helping the good landlords. Within the Department of the Environment a number of consultations are in progress about how this can be done. We are not simply shying away from this matter. We accept that it is one at which we must look very carefully.
We cannot be sure whether we shall succeed. Meanwhile, if we have to strike a balance, in my view, as a Minister in the Department responsible to landlords as well as to tenants, if we have to strike a balance we must strike it in favour of tenants who, despite the heartrending picture that the right hon. Gentleman painted, are more easily open to exploitation. I have files in my room full of examples of tenants viciously and heartlessly exploited by landlords— elderly people just like the landlords for whom the right hon. Gentleman speaks with such sincerity.
All rent legislation recognises that the tenant must be protected while the landlord receives consideration. Our Rent Bill, to provide security of tenure for furnished tenants, which has received its Second Reading in another place and will shortly be coming to this House, goes a step further.
The problems and even the plight of some landlords emphasise the inescapable fact that private landlordism is not only unsatisfactory to the overwhelming majority of tenants but is troublesome and unrewarding to many landlords as well, not least the small landlords. The collapse of the Stern Group over the last few days shows that the property companies which the right hon. Gentleman rejects are not up to private landlordism.
The case that the right hon. Gentleman has made underlines the need to remove rented property, apart from let-tings in the landlord's own home, from fixed commercial relationships and to treat it instead as a response to social need.

Mr. Peter Viggers: I am grateful for the Minister's reply to my correspondence on the subject of housing associations and I should be grateful if he could add anything to the correspondence. When will the Government announce the concessions to housing associations? It is unfair of the hon. Gentleman to make a flagrantly political point out of a fair question by my right hon. Friend. Landlords must be given consideration—

Mr. Deputy Speaker (Mr. George Thomas): Order. Is the hon. Gentleman intervening or making a speech?

Mr. Viggers: Will the Minister give the same concession to private landlords as to housing associations?

Mr. Kaufman: I do not know whether the hon. Gentleman was present when I said that it was not possible to give the same concession to private landlords. As non-profit-making public organisations, housing associations are eligible for subsidy, which the Minister for Housing and Construction has said will be made available to help them with their problems through the rent freeze. Private landlords are in it for the money. They have an investment on which they wish to receive an income. It would be absurd to subsidise them in the same way.
Before the hon. Gentleman so ingeniously tried to make a speech, I was saying that we believe that rented property must be taken out of the commercial nexus and instead be treated as a response to social need. This can be done only by social ownership, to which the Government are committed. Landlords will undoubtedly be grateful to the right hon. Gentleman for stating their case so winningly. We on this side are grateful to him for so graphically illustrating the relevance of and the need for the policies on which we hold office.

Sir J. Eden: What on earth does "social ownership" mean?

Mr. Kaufman: The right hon. Gentleman has been a distinguished—I would not dream of saying "discredited"— Minister in the Department of Trade and Industry. He supported the helping of lame ducks over stiles. His Government finally acknowledged, in defiance of the views of himself and his hon. Friend the Member for Cirencester and Tewkesbury


(Mr. Ridley) that there must be a response, even by private industry, to social need and by the Government to the needs of private industry in the interests of the economy.
We strongly believe that housing must be a social service, that everyone needs a roof over his head, not so that a profit can be made out of him but so that he and his family can live their lives in com-

fort and happiness without feeling that they will be exploited by a landlord.
I am grateful to the right hon. Gentleman for giving me the opportunity to conduct a mini political seminar at this late hour and for having initiated this debate.

Question put and agreed to.

Adjourned accordingly at half-past Eleven o'clock.